Beginning on September 29^th, Binance, the largest cryptocurrency exchange by volume, will start to automatically convert any existing user balances and new deposits of USDC (USD Coin) (the second-ranked stablecoin after USDT), USDP (Pax Dollar), and TUSD (True USD) into its own stablecoin—Binance USD (BUSD). When these stablecoins are cashed in that dollar is used to create a new BUSD. Furthermore, Binance will remove existing spot pairs that involve USDC, USDP, or TUSD, as well as prevent future trading on spot pairs that involve these three stablecoins. Binance will also help with users who choose to swap BUSD on the platform for USDC off the platform.

As per the exchange, the move is purported “to enhance liquidity and capital-efficiency for users.” What this means is that users can automatically be transferred into Binance’s stablecoin—BUSD—which would help reduce trading fees for users. Interestingly, FTX and Coinbase have a similar model with USDC where the exchanges automatically convert the stablecoin to US dollars. However, the difference between an automatic conversion to an exchanges’ own stablecoin and the automatic conversion to the US dollar is evidently stark.

For the rest of the crypto world, Binance’s decision to convert users’ USDC into its own stablecoin is likely more or less seen as a power grab. Stablecoins play a prominent role in the crypto ecosystem in that they are typically used as an “in-between” for converting between crypto and fiat currencies. Further, they are digital tokens designed to maintain a peg to the US dollar (i.e., USDC). Indeed, stablecoins make up about 80% of total trading in the crypto market and stablecoins are in competition with each other with respect to yields, clients, and customers.

For holders using the exchange, the conversion raises the possibility that such a conversion may be antithetical to using third-party stablecoins like USDC on applications that specifically support them. When a user withdraws, they will receive an equivalent number of tokens that the exchange will no longer support.

Binance’s move will likely shake up the crypto ecosystem, and raise further questions about market conduct, especially with the merge set forth to occur within the next week. Despite the automatic conversion of USDC, USDP and TUSD, the exchange noted that it has no present plans to auto-convert the largest stablecoin, USDT (Tether), which has been slowly dropping as USDC has been rising. Zooming in on the financial aspect, it will be interesting to watch how much USDC Binance has on tap and on reserve to carry out these swaps. Ultimately, Binance’s decision to convert USDC into its own BUSD stablecoin may, in fact, have to do with pending regulation, particularly changes in registration and validity requirements under different countries and states’ rules and regulations.