Key Takeaways:

  • Binance CEO Changpeng Zhao (CZ) spent an hour answering users’ questions on Twitter Space on February 14, 2023, with most of the discussion focusing on stablecoins and BUSD;

  • BUSD is not issued by Binance. It carries the Binance brand, but is not created or operated by Binance. Binance is a platform designed to help people access a variety of digital assets (including stablecoins), and will continue to work with multiple stablecoin issuers;

  • Although the minting of new BUSD tokens has ceased, the existing BUSD supply in circulation is safe, and if you look at the New York Department of Financial Services (NYDFS) notice, you will see that they specifically instructed Paxos to ensure that BUSD maintains a 1:1 peg and the ability for customers to redeem in an orderly manner;

  • Regulation is tightening. In the long run, this will limit the adoption of crypto by traditional financial service providers, making them less competitive, but the crypto industry is extremely resilient;

  • Different jurisdictions have different regulatory regimes towards blockchain, Web3 and crypto, for example Dubai, Bahrain and France are all generally positive at the moment;

Note from CZ: The following is a summary of the questions I answered during the Twitter AMA on February 14, 2023, covering topics such as BUSD, BUSD alternatives, Circle, etc. Please note that this is not an exact transcription, I removed a lot of stuttering and rephrased it for clarity (and added some missing content).

About BUSD and alternatives to fiat-backed stablecoins

Question: Given the recent developments with BUSD, and the failed Luna/UST, do you see any alternatives to fiat-backed stablecoins? Also, why are we still running on this USD system? As an emerging industry, we should have hard assets to back us up, so why don’t we move to gold-backed stablecoins, for example? What do you think is wrong with this?

CZ: There are many topics here. First of all, most people's transaction costs are still calculated in fiat currency, such as everyone calculates cryptocurrency prices in US dollars, so we still need stablecoins based on fiat currency.

However, given the pressures facing dollar-based stablecoins, I think the crypto industry may turn more to non-dollar stablecoins, including euro, yen, and possibly even yuan-based stablecoins, and we now see many of these options on the table.

Algorithmic stablecoins may also rise again, but algorithmic stablecoins have different risk characteristics. When users use one asset as collateral for another asset, there is always a risk of decoupling. We need to ensure that these risks are clearly presented to users.

One problem with UST is that it is opaque, no one knew what Do Kwon or his team was doing when UST collapsed, and Do Kwon was too slow to use Bitcoin reserves to restore the UST peg.

This might be a better approach if the algorithm for restoring the peg was encoded in the smart contract in a transparent way (like in DeFi/Uniswap), where people would at least be aware of the risks involved, but it needs further development.

As for gold-backed or real asset-backed pegged currencies, that is another topic entirely, and I believe these have not yet taken off, mainly because it is almost impossible to verify whether the asset backing of gold actually exists, and their pricing is difficult to calculate. So, I don’t think these are realistic and viable options for stablecoins yet.

There are many potential solutions to the problems we face, and many projects working on these solutions have contacted us over the past few days. Overall, the crypto industry will eventually find solutions and continue to evolve.

Is BUSD still safe?

Question: Thank you for being here on Valentine’s Day. My question is, is BUSD still safe?

CZ: First of all, happy Valentine's Day everyone!

Secondly, for BUSD, if you look at the notice posted on the New York Department of Financial Services (NYDFS) website, you will see that they specifically instructed Paxos to ensure that BUSD maintains a 1:1 peg and the ability for customers to redeem in an orderly manner.

Therefore, even if new BUSD is stopped from being minted, the existing BUSD circulating supply is safe.

No user should suffer any loss.

About BUSD and Overall Market Sentiment

Question: Overall, what is your overall take on the current situation with BUSD? What impact do you think this will have on the market?

CZ: In general, regulation is getting stricter. We've seen multiple banks stop supporting crypto businesses, and not long ago, Coinbase was fined $100 million, then Kraken was fined $30 million for its Earn program, and now it's BUSD's turn.

In the short term, the cryptocurrency industry will be negatively affected to some extent because we have lost access to fiat currencies, reduced product supply, etc., but the cryptocurrency industry is extremely resilient and we have seen the recovery of the crypto market after FTX’s bankruptcy.

However, in the long run, increasingly tight regulations will really limit the pace of traditional financial service providers in adopting crypto technology, causing their blockchain adoption to be delayed by at least three to five years, which will make them less competitive in this new field in the future.

About NFT

Question: I’d like to hear your thoughts on NFTs and whether you actually own any?

CZ: Okay, the short answer is: no, I don’t own any NFTs.

I’m not an art collector, and I don’t listen to much music. My background is as a programmer and running a business, which you probably already know if you read my blog.

I’ve been gifted some NFTs, but I don’t actually remember the wallet address I used to receive them.

I think NFT technology is really great, but we are still only seeing the tip of the iceberg in terms of what this technology can do.

On the role of stablecoins and Binance

Question: How do you see the stablecoin market developing in the future, and what role do you think Binance will play in this space? Secondly, how do you respond to the criticism that stablecoins are just another form of fiat currency, which undermines the decentralized nature or spirit of the crypto space?

CZ: The first thing to say here is that BUSD is not issued by Binance.

It has the Binance brand on it - just as we agreed to it. But it's not something we created, the idea was not created by us, it was proposed by Paxos, so we see ourselves (Binance) as a facilitator.

Binance is a platform that aims to help others access cryptocurrencies (including stablecoins), we provide liquidity, and we always use multiple stablecoins. Just like now we support USDT, USDC, TUSD and some other stablecoins, we will continue to work with multiple stablecoin issuers or creators.

As for the second part, I think stablecoins provide a lot of value in the crypto industry and they are definitely good for cryptocurrencies. Stablecoins are kind of like a hybrid between native cryptocurrencies like Bitcoin and the traditional fiat currency world, where if you want to use a bank to move money across borders, it’s pretty difficult, slow, and expensive, but when you use a stablecoin that runs on a blockchain, it’s much faster and cheaper.

Without stablecoins, you might see different cryptocurrency prices in different countries and on different exchanges.

Circle, Binance, and BUSD

Question: My question is about the Bloomberg article that says Circle complained to regulators about your management of BUSD. Do you think this is an attack on Binance? What is your opinion on this?

CZ: Well, a few people sent me that article, and I really didn’t believe it was true.

I think any professional industry player knows that if you hurt one industry player, you hurt all the others. With BUSD getting hurt, USDC is also facing a lot of redemptions and shrinking market cap, so I think Circle is much smarter.

Also, we know that the media likes to put A and B on opposite sides, and then go “3, 2, 1, hit!” We can’t blame them, their job is to sell stories, but we need to take media articles with a grain of salt, so I wouldn’t read too deeply into these articles.

Binance has been working with multiple stablecoin partners and will continue to do so in an effort to help build an open global ecosystem.

About the US SEC's review of cryptocurrencies

Question: The SEC has basically declared open hunting season for crypto projects - at least that's what I think. What advice do you have for other crypto founders on how to survive? Moving to Dubai is one piece of advice. Do you have any other advice for founders?

CZ: Well, I wouldn’t characterize it that way. I don’t think the SEC would say anywhere publicly that it’s a “hunting season,” that’s probably how other people interpret things.

But there will definitely be more regulatory scrutiny and they will pay more attention to cryptocurrencies. As you said, different jurisdictions now have different regulatory regimes for blockchain, Web3, and cryptocurrencies.

For example, Dubai, Bahrain, and France are all positive about cryptocurrencies, and there are many other regions that are also very friendly. Therefore, one option is to explore multiple places, and if you are serious about your project, moving to a new country may not be a bad thing.

People often move to different neighborhoods within a city or different cities within a country but sometimes people are very scared to move to a new country, I don’t know why this is, we all live on a small rock called earth.

I'm not an expert or a lawyer, but I think you definitely want to get professional advice. Basically, consult with a lawyer who understands your product and makes sure it doesn't cross any regulatory red lines, but there is quite a lot of uncertainty and lack of clarity at the moment.

One thing you can do is to proactively go and talk to the regulator, some are more accessible than others, so it depends on luck and who you are or who you know, at least most regulators claim that they welcome people to come and talk to them.

Another way you could think about it is to look at how others are doing it now, kind of like following the “industry norm” as much as possible, aka herd mentality.

Overall, there are indeed some pretty favorable jurisdictions for the rapidly growing crypto industry.