Binance acknowledged problems with the BUSD stablecoin. Situation analysis

Blockchain analyst Jonathan Reuter found an error in the operation of Binance-pegged BUSD token is backed 1:1 with US dollars held in reserve. Thus, according to the report, the dollar-backed stablecoin was being issued with missing collateral from 2020 to 2021. 

That is, there was not always enough money in the account to protect investors’ funds. Sometimes it came down to a lack of collateral of more than $1B. 

What’s known

The dollar-back process is as follows: 

• the user wants to buy Binance-peg BUSD;
• the exchange purchases a similar amount of BUSD;
• blocks the funds in the wallet.

However, it turned out that the company did not block the money in the account, so the asset did not have missing collateral. 

Binance, which owns the asset, admitted the mistake and explained the situation. According to representatives of the company, the peg to the fiat was weakened, but now everything is working properly. As for the reasons, in an interview with Bloomberg, Binance admitted that they are related to operational delays. Explaining that there are a lot of people and whole teams involved in the pegging, and the process wasn’t flawless before, which could lead to delays in operations. 

Later in the company’s blog, another reason was stated. They said the company has always rebalanced or updated assets to be 1 to 1, periodically, not in real-time. Now they try to do it much more often.