Guess this is not new, but it seems like an obviously horrible idea!! The minute people lose confidence, the value of BUSD go do down and people will withdraw in not-BUSD. Meaning they will have to make more BUSD to cover the difference, devaluing the BUSD more, causing a spiral.
What am I missing here? Hmm..
BUSD is just USD denominated in tokens on chain, each token represents 1 usd at their bank so they cannot (or rather, should not) mint more than they have in custody.
My understanding is limited, but naively:
- I give them 10 USDC
- They convert it to 10 BUSD
- Price of BUSD falls to 0.5$
- I want my 10 USDC back
- They have to sell 20 BUSD to get 10 USDC
- They have to generate 10 BUSD ??
Also, one could argue that if the BUSD price drops against the dollar they should have more BUSD ? Or how does that work? :)
Although, in practice, I don't think they would buy USDC via BUSD, but use their cash reserves for that. The cash reserves correspond (allegedly) 1:1 to BUSD so they would need to burn equivalent amount of BUSD as well. This all means that Binance would always value BUSD at 1 USD. I don't see a scenario where BUSD falls to 0.5usd if there are no shenanigans happening with the cash reserves.