Curve Pools Drained of Tether as BUSD Holders Dump Stablecoin

Tether’s USDT Market Dominance Touches New High, BUSD Supply Drops $2B

Stablecoin holders have drained BUSD liquidity from Curve Finance’s busdv2 liquidity pool as issuer Paxos faces regulatory turmoil.

Investors increased the proportion of BUSD in the Curve pool from 69% on Monday, February 13, 2022, to 81% on February 14, 2023, after US regulators ordered the New York-based firm to stop tapping BUSD from February 21, 2023.

Liquidity Pool Curve Shows USDT Lower and BusD High

At press time, USDT was only up to 4% of the swimming pool, suggesting that traders were fleeing Paxos to seek refuge in Tether, another centralized stablecoin. Outflows from Binance, whose name stands for the first letter of BUSD, were $2.7 billion between February 13 and February 14, 2023.

busdv2 Pool Reserve Composition | Source: Curve

A stablecoin uses an algorithm, other cryptocurrencies, fiat reserves, or a combination of methods to maintain the value of $1.

On February 13, 2023, the New York State Department of Financial Services ordered Paxos to stop issuing BUSD, and the SEC issued a Wells Notice to the firm. Wells’ notification allows the firm to defend itself against an alleged irregularity before possible enforcement action. The notice alleged that BUSD was an unregistered security.

USDC Allocation Increases in 3Pool as Investors Swap USDC for Tether

Details from Curve’s 3 swimming pools indicated that investors are also dumping USDC, a stablecoin issued by Circle International Financial, affecting the composition of the pool, which must contain USDT, USDC, and DAI in equal proportion.

The dumping comes as investors fear the SEC will crack down on Circle for offering USDC as an unregistered security.

Since February 13, 2023, the USDC in 3 Curve pools has increased from 31% to 38%, and Tether pool share has fallen from 24% to 21% in two days.

Pool Reserve Composition 3
3pool Pool Reserve Composition | Source: Curve

Curve is a decentralized exchange for stablecoins created by former Russian physicist Michael Egorov. Curve protocol trading algorithm attracted attention for its low slippage and spread between trading counterparties.

Land Gains Decentralized Stablecoins

The massive rush to Tether comes even as accounting firm BDO recently validated the issuer’s USDT reserves recorded in a Consolidated Reserves Report published in December 2022.

In the report, BDO found that Tether cut its commercial paper holdings and increased the proportion of its reserves in US Treasury bills to 58% to satisfy stablecoin redemptions after the collapse of TerraUSD last May, USDT briefly lost its value by $1.

Unlike Paxos, Tether is not overseen by a prudential authority in the United States that forces it to hold capital to honor customer redemptions. Accordingly, investors are at risk of losing their money if Tether were to experience a bank run.

But not all BUSD holders have switched to Tether. LQTY, the token behind the decentralized lending protocol Liquity, rose to an all-time high of $1.07 following the Paxos announcement. Liquidity issues interest-free loans denominated in its stablecoin LUSD, which is over-collateralized by ETH. It uses algorithms to set a loan issuance fee.

3pool’s proportion of DAI has increased slightly to 40% following actions against BUSD. MakerDAO’s DeFi protocol issues stablecoin DAI permanent loans against ETH deposits.

To Be[In]Crypto’s latest Bitcoin (BTC) analysis, click here.


BeInCrypto has reached out to a company or individual involved in the matter for an official statement on the recent developments, but has yet to hear back.

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