Binance, the largest cryptocurrency exchange, has been experiencing record outflows over the past few days as regulators move in to clamp down on its stablecoin dealings.

Binance Coin (BNB) experienced a massive drop in price over the past week. The coin fell below the $300 mark after seeing more than a 6% correction in the past 24 hours.

The fall follows an investigation from the U.S. Securities and Exchange Commission (SEC) against crypto firm Paxos, which issued the BUSD Binance stablecoin.

Binance Coin (BNB) Price 1W Chart By BeInCrypto

Dune Analytics data shows that Binance saw exchange outflows of $916 million on Feb. 13. This is the largest single-day outflow for the exchange since Nov. 24, as evident in the screenshot below.

Binance Daily Net Flow Chart by Dune Analytics

Most of these outflows are likely from investors rushing to reduce their exposure following the regulatory scrutiny surrounding the Paxos-issued BUSD stablecoin. Following this, BUSD briefly lost its $1-peg and its market capitalization is currently below the $15.8 billion mark.

Nearly 342M BUSD have been burned at Paxos Treasury within the last 24 hours, according to PeckShield.

Conflicts Over ‘Security’ Classification

Paxos responded to the SEC after the regulatory watchdog issued a Wells notice, or intentions to sue, the crypto company. In this response, the Paxos team countered the regulator’s viewpoints concerning the classification of BUSD as a security.

Paxos issued the following statement on February 13. Read the full statement here: https://t.co/jbfcBAiCgf pic.twitter.com/T7k80QtKyX — Paxos (@PaxosGlobal) February 13, 2023

Much of the crypto community has voiced its opinion regarding the lawsuit. Binance CEO Changpeng Zhao even added his comments on the SEC lawsuit against Paxos amid the chaos.

Despite admitting that he is “not an expert on U.S. laws” with no additional information about the case besides public news articles, Changpeng Zhao warned of “profound impacts” on the crypto industry if BUSD was classified as a security.

6/ "IF" BUSD is ruled as a security by the courts, it will have profound impacts on how the crypto industry will develop (or not develop) in the jurisdictions where it is ruled as such. — CZ 🔶 Binance (@cz_binance) February 13, 2023

Interestingly, issues surrounding Binance’s stablecoin were aired by Circle, a rival crypto exchange, months ago. It filed a complaint with the New York State Department of Financial Services (NYDFS) against Binance last year, accusing the exchange of mismanaging the reserves for its tokens.

Circle claimed that many of Binance’s assets were massively undercollateralized and could potentially lead to investors suffering significant losses.

Industry Outlook

Considering Binance’s dominance in the crypto space, restrictions or regulations on BUSd or any of its assets would likely have a rippling effect across the entire industry.

Changpeng Zhao took to Twitter to claim that ‘all funds are #SAFU,’ and also reiterated that Paxos would continue to manage redemptions of BUSD.

8/8 Given the ongoing regulatory uncertainty in certain markets, we will be reviewing other projects in those jurisdictions to ensure our users are insulated from any undue harm. — CZ 🔶 Binance (@cz_binance) February 13, 2023

During this whirlwind, Binance hired Noah Perlman, the former Chief Operating Officer of Gemini Trust, to be the exchange’s Chief Compliance Officer.

Binance has hired Kraken’s chief compliance officer Steven Christie as senior vice president of compliance in 2022; Tammy Weinrib, who was vice president of financial crime compliance at Societe Generale, was hired as chief compliance officer; unsure whether still employed. — Wu Blockchain (@WuBlockchain) February 14, 2023