US regulators started 2023 off by tightening conditions for the cryptocurrency market. In February, for example, the cryptocurrency exchange Kraken received a pre-enforcement action notification for providing staking services, as did Paxos, which is responsible for issuing the BUSD stablecoin for Binance.

In short, Binance internally produces a BUSD clone on the BSC blockchain, and Paxos supports BUSD on the Ethereum blockchain. The crypto exchange created a significant gap in 2021 between the collateral on hand and the number of coins minted. Some months, BUSD was undercapitalised by $1 billion or more, as revealed in a report by independent analytical agencies.

Because Binance is more difficult to hold accountable, Paxos received the pre-enforcement action notification. The company has refused to mint BUSD since 21 February as it works to address the situation. It may stop supporting the stablecoin completely in a year's time. 

Institutional investors and large clients began abandoning the coin en masse, leading to a doubling decline in capitalisation this year. On the other hand, USDT's capitalisation gained 7.8%, rising to $71.5 billion in two months.

Tether has spent the past three years seeking to improve its position in the cryptocurrency market by reducing the share of corporate bonds in its reserves. If USDT-secured loans (and other forms of liabilities) previously used to account for half of the total reserves, their share is now below 20%.

In addition to financial improvements, the company has become more amenable to law enforcement agencies' demands. This is reflected in the number of blocked addresses, which rose from 18 in January 2020 to 829 in January 2023.

But the desire to be on close terms with the law hasn't spared Tether from legal attention. Last year, Judge Katherine Polk Failla demanded the company's books and all sorts of financial records for the past five years in connection with an investigation into the unsecured USDT issue and subsequent Bitcoin pump with Bitfinex in 2017.

A history of misdeeds, several active lawsuits and the potential adoption of the Stablecoin TRUST Act in the US in 2023 prevent Tether from taking full advantage of BUSD's reduced capitalisation.

StormGain Analytical Group 
(platform for trading, exchanging and storing cryptocurrency)