AAVE Freezes BUSD Reserves Following NYDFS Ban and Decreasing Market Demand

The unanimous approval of the proposal to freeze BUSD reserves in the Ethereum Aave V2 pool took effect on February 27th. According to comments posted on the official DeFi AAVE protocol resource, the decision to block Binance USD (BUSD) stablecoins was made despite the fact that BUSD is not a borrowed asset and its emission termination does not pose a debt risk for market participants.

The circulating supply of BUSD is expected to eventually drop to zero, as there are no real prospects for its growth, and the inability to issue new stablecoins can damage the possibilities of arbitrage practice. Therefore, AAVE communities decided to freeze all BUSD reserves and invite users to switch to another stablecoin present in AAVE.

It is worth recalling that in mid-February, the New York State Department of Financial Services (NYDFS) demanded that Paxos Trust stop issuing new Binance USD due to a joint decision made by the NYDFS, the Securities and Exchange Commission (SEC), and other state regulators.

Despite Paxos’ efforts to maintain margins and convert BUSD into cash, this stablecoin continues to lose ground in the market. The current supply of stablecoins has decreased by 30% over the past 30 days, and as of February 27th, the market capitalization of BUSD fell from sixth to eleventh place in the CoinGecko rating, fixed at $10.7 billion.

The value of the asset also decreased by 0.2% over the day, and BUSD is currently trading at $0.9986.