2. March 2024

Diversify Your Stablecoin Strategy: Binance CEO Talks Risk

• Binance CEO Changpeng “CZ” Zhao is looking to diversify the stablecoin market by introducing smaller, algorithmic stablecoins.
• CZ cited risks associated with current global stablecoins such as Tether (USDT) and Binance USD (BUSD) due to lack of transparency and regulation.
• Binance is working on algorithmic stablecoins and diversifying its partnerships to spread out potential risk.

Binance Diversifying Stablecoin Market

Binance CEO Changpeng “CZ” Zhao is looking to bring smaller algorithmic stablecoins to the market in order to offer investors options other than the current global stablecoin giants. In a July 31st ask me anything session on Twitter, CZ highlighted risks associated with large stablecoins such as Tether (USDT) and Binance USD (BUSD), due to their lack of transparency. Even supposedly well-regulated and fully audited stablecoins such as BUSD come with their own set of unforeseeable risks, he added.

Risks Associated With Large Stablecoins

Tether is currently the largest stablecoin by market cap, yet CZ remains cautious of it due to its lack of transparency: “I personally have not seen any audit reports of USDT. I don’t think most people I spoke to have not seen that either. So it’s kind of a black box because we just don’t know.” On February 13th, blockchain infrastructure platform Paxos Trust Company ended its partnership with Binance and ceased minting new BUSD stablecoins following an order from the New York Department of Financial Services.

Diversifying Risk Through Stablecoin Partnerships

In response to these regulatory and transparency risks, CZ revealed that Binance is working on algorithmic stablecoins as well as diversifying its partnerships in order spread out potential risk: “We should just work with as many stablecoins as possible. We shouldn’t have a single bet,” he said; adding that they are “working on algo [algorithmic]stable coins in different places that are not high scale, but they are very relevant locally in those places”.

Plans To Launch The First Digital USD In Hong Kong

Notably, the CEO also announced plans for Binance to launch the First Digital USD in Hong Kong, aiming at setting new sights on Europe for further stability coin options. First Digital USD is a program aimed at allowing customers who hold US dollars held by participating banks in Hong Kong or Singapore can convert them into digital US dollars through a secure network operated by Prime Trust company — an American financial services provider based in Nevada registered under FinCEN regulations — without going through traditional banking channels or having exposure directly related to cryptocurrency exchange assets .

Conclusion

Overall, CZ said that spreading risk across different types of stability coins is key when it comes mitigating potential risks associated with each individual asset type: “So our approach is […] let’s just diversify and see which one grows bigger.”