DeFi protocol Aave will freeze reserves in BUSD due to the SEC’s actions

Marc Zeller, a member of the DeFi protocol community, explained that since new BUSD are no longer being issued, the supply of the asset will trend to zero

13.02.2023 - 16:30

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Members of the Aave community are consider a proposal to freeze Binance's BUSD stablecoin on the platform after the token's issuer, Paxos, was sued by the Securities and Exchange Commission Monday.

Aave is a decentralized finance protocol (DeFi) that allows users to lend, borrow and stake with others through smart contracts.

A governance proposal by Aave community member MarcZeller said that as Paxos will no longer issue new BUSD tokens, the supply will trend to zero, which could "hurt peg arbitrage opportunity and asset peg."

Though there is no risk to the protocol, "BUSD has no prospect for growth," MarcZeller added.

Thus far, the proposal has received a series of positive responses, with one member going further and suggesting Aave liquidate its BUSD holdings to mitigate further risks.

Binance's BUSD stablecoin fell from its U.S. dollar peg earlier Monday as investors attempt to safeguard their holdings by moving funds into other stablecoins including tether (USDT) and USD coin (USDC).

This material is taken from the website coindesk.com.

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