Crypto exchange Binance’s decision to convert all existing balances and future deposits of three stablecoins USD coin (USDC), trueUSD (TUSD) and pax dollar (USDP) into its native binance USD (BUSD) may generate limited additional revenue in the short term, but could have larger implications longer term, Bank of America (BAC) said in a research report Thursday.
The automatic conversion may increase the supply of BUSD by as much as $908 million, as 2% ($898 million) of USDC’s supply and 1% ($10 million) of USDP’s supply are held on Binance, the report said.
Stablecoins are a type of cryptocurrency whose value is pegged to another asset, such as the U.S. dollar or gold.
The bank notes that 86%, or $17 billion, of BUSD is held on Binance, which shows that the stablecoin isn't being used regularly throughout the wider crypto ecosystem and therefore, lacks utility, analysts led by Alkesh Shah wrote.
Bank of America sees the potential for a larger increase in BUSD supply over the longer term as exchange users become more familiar with the coin and as applications across add more support for it in an attempt to attract users.
Binance will benefit from this increasing supply because it’s able to invest the additional reserves that will back the stablecoin in cash equivalents such as U.S. Treasurys and overnight loans secured by Treasurys to earn interest income.
The implications for USDC are limited, but there is the potential for the stablecoin to increase its market share relative to tether (USDT), the largest stablecoin by market cap, which was excluded from the automatic conversion, because exchange users may be more likely to convert BUSD into USDC than into USDT when withdrawing funds.
There will likely be a significant increase in stablecoin volumes as the “Web3 ecosystem of decentralized applications develops,” the note added.