The bank said that the automatic conversion of other stablecoins could add $908 million to the amount of binance USD on the market.
Trade in crypto Bank of America (BAC) said Thursday in a research report that 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 own native binance USD (BUSD) may not bring in much more money in the short term, but it could have bigger effects in the long run.
The automatic conversion could add as much as $908 million to the supply of BUSD, since Binance holds 2% ($898 million) of USDC’s supply and 1% ($10 million) of USDP’s supply.
Stablecoins are a type of cryptocurrency whose value is tied to another asset, like the U.S. dollar or gold.
Analysts led by Alkesh Shah wrote that the fact that 86%, or $17 billion, of BUSD is held on Binance shows that the stablecoin isn’t used often in the wider crypto ecosystem and doesn’t have much use.
Bank of America thinks that the supply of BUSD could grow more over time as exchange users become more familiar with the coin and as more applications add support for it to try to attract users.
Binance will benefit from this growing supply because it can invest the extra reserves that will back the stablecoin in cash equivalents like U.S. Treasurys and overnight loans backed by Treasurys to earn interest income.
The effects on USDC are small, but the stablecoin could gain market share compared to tether (USDT), which is the largest stablecoin by market cap but wasn’t included in the automatic conversion. This is because exchange users may be more likely to convert BUSD to USDC than to USDT when they want to withdraw money.
As the “Web3 ecosystem of decentralized applications” grows, the note said, stablecoin volumes are likely to rise by a large amount.
