Why did Binance convert all its SAFU funds into USDC?

Author: ByRyan S. Gladwin Source: decrypt Translation: Shan Ouba, Golden Finance

Crypto exchange Binance has converted its entire Security Asset Fund (SAFU) into USDC, the second largest stablecoin by market value after Tether.

SAFU is an emergency insurance reserve designed to provide protection for investors who use Binance. The fund is used to reimburse traders in the event that the exchange loses investor assets (such as as a result of a hacker attack).

Normally, the fund aims to always maintain a value of more than $1 billion. Before the conversion, it held Bitcoin (BTC) and Binance Coin (BNB), which have fallen 12.6% and 9.1% respectively in the past 7 days, according to CoinGecko data. Therefore, in order to improve "reliability and stability", the cryptocurrency exchange decided to convert its entire balance to USDC.

"SAFU is an emergency insurance fund established in 2018 to protect Binance users in extreme situations," Binance said in a blog post. "Over the years, we have been monitoring the size of SAFU and keeping the balance at a level sufficient to protect user rights."

About $1 billion in BTC flowed out of the SAFU Bitcoin wallet, and more than 740 million BNB flowed out of its Binance wallet. Using a block explorer shows that both funds ended up in Binance hot wallet addresses. Now, it seems that only the $1 billion in the SAFU Ethereum address is left.

“Over the years, we have monitored the size of the SAFU, maintaining the balance at a level sufficient to safeguard user interests,” a Binance spokesperson told Decrypt. “While it fluctuates, the level is generally set at $1 billion.”

Crypto Twitter watchers speculated that the move was more about Binance taking profits than the fund’s poor health. Despite Bitcoin’s recent plunge, it remains well above its level at the beginning of the year.

Moving assets into stablecoins is a common strategy to increase fund stability, as stablecoins are designed to maintain the value of fiat currencies. However, it is worth noting that Binance chose Circle’s USDC instead of Tether’s USDT — the latter currently tops the list of largest stablecoins with a market cap of over $76 million.

In a blog post, Binance justified the decision by stressing that USDC is a “trusted, audited, and transparent stablecoin.” Tether has been controversial, with critics saying the stablecoin is not truly backed by actual dollars - which many believe is why it occasionally loses its peg to the dollar.