The stablecoin, which is now involved in a regulatory dispute, quickly restored its $1 peg.
Binance Dollar (BUSD), the third-largest stablecoin by market capitalization, rapidly fell to a low of 20 cents versus the DAI stablecoin on Wednesday morning, when liquidity on the Binance cryptocurrency exchange dried up.
A single $647,000 market sell order precipitated a cascade of slippage down to 20 cents, which precipitated the decline. BUSD instantly recovered its parity against DAI on Binance, since arbitrage traders could theoretically acquire BUSD for less than $1 on Binance and sell it on another exchange for $1.
According to Binance’s order book, there are $3.38 million in aggregated sell orders below the $1 peg at 20 cents, implying that it would take a $3.38 million market sale to return the price to that level.
In order for Wednesday’s $647k sell order to generate a move of that size to the downside, either liquidity was removed from the book just before the sale, or a pricing mistake failed to account for pending purchase orders.
BUSD is mired in a regulatory dispute when the New York Department of Financial Services (NYDFS) ordered Paxos to cease creating the stablecoin, a move that will result in the supply of BUSD gradually approaching zero.