Cryptocurrency exchange Binance has suspended trading of a small Euro-pegged stablecoin known as AEUR due to “abnormal volatility.” The stablecoin, issued by Switzerland-based Anchored Coins, experienced a sudden surge of nearly 200% on December 5th, 2023, before plummeting back down.
The volatile trading activity prompted Binance to halt trading of the AEUR/USDT pair, citing concerns about potential market manipulation and the coin’s limited liquidity.
- AEUR, supposedly pegged to the Euro, started the day trading around $1.08.
- The price spiked sharply at around 17:45 UTC, reaching a high of $3.25.
- Binance halted trading shortly after, with the last trade executed at approximately $2.89.
Potential Reasons for the Volatility:
- Low Market Cap and Liquidity: AEUR has a small market capitalization of roughly $5 million, making it more vulnerable to manipulation than larger stablecoins like Tether (USDT) or USD Coin (USDC).
- Limited Trading Pairs: AEUR was only available for trading against USDT on Binance, further limiting its liquidity and potentially making it easier for price manipulation.
- Algorithmic Trading: The sudden and dramatic price surge suggests the possibility of algorithmic trading bots exploiting the low liquidity and manipulating the price.
Binance’s Response and Future of AEUR:
Binance has not provided a timeline for when trading of AEUR will resume. The exchange has also advised users to “exercise caution” when trading any small and illiquid tokens.
The future of AEUR remains uncertain. The stablecoin’s reputation has been tarnished by the recent episode of volatility, and it faces an uphill battle to regain user trust.
Industry Implications and the Future of Stablecoins:
The AEUR incident highlights the risks associated with small and illiquid stablecoins. It also raises concerns about the potential for manipulation in the broader stablecoin market.
Regulators around the world are increasingly scrutinizing stablecoins, and it is likely that we will see stricter regulations introduced in the coming years. This could lead to a shake-out in the stablecoin market, with only the most well-established and regulated coins surviving in the long run.
For investors, the AEUR incident serves as a reminder to only invest in reputable stablecoins with a proven track record. It is also important to be aware of the risks associated with small and illiquid tokens, and to exercise caution when trading them.
In conclusion, the suspension of AEUR trading by Binance is a stark reminder of the risks associated with investing in small and illiquid stablecoins. This incident highlights the need for stricter regulation in the stablecoin market, and for investors to be cautious when choosing which stablecoins to invest in.