With a traded volume of $16.68 billion in the last 24 hours, Binance stands as the most prominent cryptocurrency exchange in the market. Coinbase, the second-largest global exchange, doesn’t even come close, reporting around $1.23 billion in daily trading volume.
In short, Binance’s role in adoption and liquidity within the centralized exchange (CEX) ecosystem is undeniable. However, traders who use the stablecoin USDT (Tether) in their operations might overlook a critical detail.
How Does USDT Work on Binance?
If you attempt to transfer USDT from your Binance account to an external wallet, you’ll notice four available options:
- BNB Smart Chain (BEP20)
- AVAXC (Avalanche)
- Ethereum (ERC20)
- MATIC (Polygon)
USDT was originally built on the ERC20 standard, with its value pegged 1:1 to the US dollar. In theory (we’ll explore this shortly), each USDT in circulation is backed by a corresponding US dollar.
Polygon operates as a sidechain, enabling faster and cheaper transactions for ERC20 tokens through interoperability bridges. Avalanche blockchain uses its own technology to transfer ERC20 tokens between Ethereum and Avalanche C-Chain.
Meanwhile, USDT-BEP20 tokens are issued directly by Binance, not by Tether Limited, the company behind the original stablecoin. Tether Limited is a subsidiary of iFinex Inc., which also owns the Bitfinex exchange.
How Does the USDT-BEP20 Token Work?
According to Binance, 100% of USDT-BEP20 tokens are collateralized by USDT-ERC20 and USDT-TRX (issued by Tether). This means the parity operates at a 1:1:1 ratio (1 USDT-BEP20 = 1 USDT-ERC20 = 1 USD).
Binance’s press team stated:
"Our capital structure is debt-free, and user assets are all 1:1 backed, ensuring we always have sufficient funds to meet withdrawal requests."
Additionally, Binance shared a CryptoQuant report analyzing the exchange’s on-chain financial data—though it doesn’t specifically address ETH-ERC20 reserves. However, Binance has committed to disclosing detailed reserve information for ETH, USDT, USDC, BUSD, and BNB.
Transparency Concerns
Tether’s Transparency Portal lists authorized ecosystems for USDT issuance, including Tron, Ethereum, Solana, Omni, Avalanche, Tezos, Algorand, and Polygon—but notably excludes Binance Smart Chain (BSC).
Key takeaways:
- Tether Limited claims all USDT tokens are 100% backed by its reserves.
- Binance claims USDT-BEP20 tokens are fully collateralized by USDT-ERC20.
- If USDT-BEP20 relies entirely on another stablecoin, its stability hinges on Tether—not Binance.
- Tether has a controversial history regarding reserve audits.
- Tether’s reserves are not fully cash-backed.
- No Merkle Tree proof confirms Binance’s stablecoin reserves.
The Bottom Line
Trusting either company raises concerns. A recent Forbes article accused Binance of maneuvers reminiscent of FTX, alleging the transfer of $1.8 billion in collateralized stablecoins to hedge funds—including FTX’s Alameda Research—exposing investors to risk.
Moreover, a significant portion of Tether’s reserves are allocated to volatile investments:
- 82.13%: Cash, cash equivalents, short-term deposits, and commercial papers.
- 5.14%: Private securities, funds, and precious metals.
- 8.73%: Secured loans.
- 4.01%: Other investments, including digital tokens.
If USDT-ERC20 collapses, how would Binance compensate investors? Would USDT-BEP20 be discontinued or re-collateralized? And why doesn’t Binance rename the token—e.g., Wrapped USDT (WUSDT)—to avoid confusion, given Tether’s non-recognition of USDT-BEP20?
Strange stories often have strange explanations.
FAQ
Q1: Is USDT-BEP20 as safe as USDT-ERC20?
A: While Binance claims full collateralization, its reliance on Tether introduces counterparty risk.
Q2: Why isn’t BSC listed on Tether’s transparency portal?
A: Tether hasn’t authorized Binance’s chain for USDT issuance, raising questions about legitimacy.
Q3: What happens if Tether’s reserves fail?
A: Binance would need alternative collateral, potentially destabilizing USDT-BEP20.
Q4: Are Binance’s reserves audited?
A: No independent Merkle Tree proof exists yet, though Binance pledges more transparency.
Q5: Why does Binance offer USDT-BEP20 if Tether doesn’t endorse it?
A: Likely for liquidity and user convenience, despite regulatory gray areas.
For deeper insights, explore 👉 Binance’s Reserve Policies.