Is the money going away from potential benefits?

Safe Asset Fund for Users (SAFU) – an emergency fund established by crypto exchange Binance to cover user assets – contains various cryptocurrencies such as Bitcoin (BTC), Tether (USDT), True USD (TUSD) and BNB (BNB).

But on April 18, 2024, Binance issued the entire fund – 100% of SAFU assets – in Circle's USD Coin (USDC).

The timing of this decision may seem odd, given the recent halving of the Bitcoin bull market and high Bitcoin Exchange Traded Fund (ETF) volumes.

In the exchange, Binance exchanged 1.36 million BNB, 16,277 BTC and its holdings from USDT and TUSD to USDC.

100% of SAFU is now essentially pegged to the US dollar via a government-controlled stablecoin, what does this mean for Binance?

SAFU funds lose value in exchange for security.

In July 2018, Binance launched SAFU and financed a small percentage of transactions. On January 29, 2022, SAFU funds reached $1 billion.

The fund's dollar value has fluctuated between crypto market conditions, declining during the bear market and re-emerging above $1 billion in April 2024.

While allocating the fund in Statcoins means that it is exposed to market fluctuations, some market observers point out that this also means that it loses potential profits and is exposed to US dollar inflation.

Billionaire investor and Draper Associates founder Tim Draper told Cointelegraph that he thinks Binance's decision to upgrade its currency is “short-sighted.”

He believes it is unwise to allocate 100% of a portfolio to a stable currency pegged to the dollar, saying he “doesn't see government spending going down.”

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“Governments have little incentive to cut spending when they can print the money people receive,” he said.

Bitcoin is considered a safe asset similar to gold. Inflation, money printing and geopolitical instability are considered favorable conditions for BTC. According to Draper, SAFU decreases as Bitcoin increases:

“The dollar continues to decline against bitcoin, and I believe the decline will continue and accelerate over time.”

For others, missing out on potential benefits may just be the price Binance pays for a safe fund.

Ruslan Liinka, head of markets at fintech and crypto exchange Uhodler, agrees with Draper: “In such a configuration, SAFU funds lose their value due to inflation, but we can consider it as a payment for security.”

Lienkha told Cointelegraph that Binance could benefit from USDC's fully decentralized stablecoin setup because it would be “less vulnerable to hacker attacks, and stolen USDCs are much easier to find and block than decentralized Bitcoin.”

SAFU, he said, “has no specific investment goals as it is a form of casualty insurance.”

Maybe Binance prioritizes safety over long-term valuation, but is Binance making decisions independently or following orders?

Binance may have its hands tied

Binance may not suddenly voluntarily convert SAFU funds to USDC.

Binance declined to answer Cointelegraph's question about the exact motivation behind the decision. However, Binance's recent history with US regulatory authorities may be a factor in the adoption of USDC for SAFU.

Grant Gullovson, a US lawyer who works with crypto clients, told Cointelegraph: “Bins agreed to be monitored by the US Treasury as part of a settlement late last year, so this could definitely be related to that.”

In the year In 2023, the Commodity Futures Trading Commission (CFTC) sued Binance for violating trading and derivatives laws.

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The results forced Binance founder Changpeng Zhao to resign and settle a $4.3 billion settlement with US authorities.

Another consequence of the case is an agreement with the United States Department of Justice (DOJ) to regulate Binance's operations more broadly.

Binance's plea agreement with the US government included five years of surveillance by the Financial Crimes Enforcement Network (FinCEN), according to former US Securities and Exchange Commission official John Reid Stark in an X post:

The switch to USDC may be part of Binance's new compliance agreement with US authorities.

Why choose Binance USDC? Stablecoin is widely referred to as the most regulated and compliant stablecoin in the crypto community.

According to Ekaterina Antoni, board member and board member of the Crypto Valley Association: “US law enforcement has the same power against Tether, Circle and Paxos. If you wish, you may request that any particular entity stop serving you.

However, as she told Cointelegraph, “it may be a little more difficult to go after non-US residents than it is to go after US residents – which means Circle directors may be easier to ‘catch'.”

Binance's USDC move highlights the importance of compliance

The crypto market has grown rapidly from being considered a Wild West market to being recognized by institutional investors, as exemplified by the approval of US-based space Bitcoin ETFs in January.

Indeed, many crypto market observers expect a significant capital injection from institutional investors in the near future as they become more comfortable with digital assets.

But institutional investors want more secure and regulated markets.

This has created competition among stablecoin issuers to create products that are compliant with emerging regulatory frameworks.

USDT has dominated the stability coin sector, mainly because it has established itself as a first mover. However, Tether has been shrouded in fear, uncertainty and doubt due to its opaque approach to the assets backing USDT.

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On the other hand, the USDC Since its launch in 2018, USDC has positioned itself as a highly regulated and compliant stable coin. This has enabled USDC to take the lead in institutional adoption of Tether.

Circle has applied as an authorized stablecoin issuer under the new European legal framework, the Regulation on Crypto-Assets (MiCA).

Binance previously switched the balance of SAFU funds to a more regulated asset. In the year In March 2023, it replaced Binance (BUSD) in the fund with True USD (TUSD), reportedly in response to US enforcement action against former issuer Paxos.

Binance's move to accept USDC may come under scrutiny from US authorities. However, the exchange may be playing it safe, following the trend of the crypto industry deregulation to attract the new wave of institutional investors.