What Is Binance USD (BUSD)?

What Is Binance USD (BUSD)?

Binance USD (BUSD) is a stablecoin backed 1:1 by the US dollar. It was created by Binance, a prominent cryptocurrency exchange, in conjunction with Paxos.

BUSD Token (BoundlessPay)

BUSD is a fiat-backed stablecoin jointly launched by Binance and Paxos.  US dollars kept in reserve are used to back up each BUSD token 1:1. BUSD intends to offer a more stable cryptocurrency option for investors and traders who seek an alternative to the extremely volatile crypto assets.

This stablecoin is approved and regulated by the New York State Department of Financial Services (NYDFS). Along with regular audits, this regulation helps to ensure that each BUSD token is backed 1:1 with US dollars. This assurance gives investors more confidence when using this stablecoin. Overall, Binance USD is a stablecoin with versatile features.


The Story Of BUSD?

In September 2019, Binance announced that it was launching a new stablecoin. The token was developed in partnership with Paxos, a regulated financial institution that issues digital assets. The founder of Binance, Changpeng Zhao, stated that the new token would be fully backed by US dollars.

Paxos started as a fintech company in 2012. The company is based in New York and is regulated by the New York State Department of Financial Services. In 2018, Paxos launched one of the first digital assets to be regulated by a US state. The asset was called PAX, and it was a stablecoin that was backed by the US dollar. Only a year later, Paxos launched BUSD in partnership with Binance. 

The launch of Binance USD marked a major milestone for Binance. Up until this point, the majority of stablecoins had been built on the Ethereum blockchain. Binance USD was one of the first stablecoins to be built on the Binance Chain.

This was a strategic move by Binance. By launching a stablecoin on their own blockchain, they were able to provide an alternative to Ethereum’s popular stablecoins. 

In the months following the launch of Binance USD, the token quickly gained popularity. This was in part due to Binance’s aggressive marketing campaign. The token was also added to several popular cryptocurrency exchanges, such as OKEx and Huobi.


How BUSD Works

The mechanism for keeping BUSD’s peg is relatively simple compared to other types of stablecoins. Each BUSD is exchangeable for 1 USD from the reserves. By sending your BUSD to Paxos, they will burn your tokens and provide you with the fiat currency. This mechanism keeps the supply and reserves at a constant 1:1 ratio.

Whenever the price of BUSD begins to move lower than $1 per 1 BUSD, arbitrage traders will purchase BUSD in large quantities. Even a price of $0.98 could provide them with an opportunity to make a profit. After purchasing large amounts of BUSD, the arbitragers can then convert the BUSD tokens into fiat through the Paxos platform. An increase in demand for BUSD naturally raises the token price back up to $1, restoring the 1:1 peg.


What Makes BUSD Unique?

BUSD is distinct from other stablecoins on the market for several important reasons. To begin with, BUSD is a type of fiat-backed stablecoin. There are other crypto-backed stablecoins, such as DAI, that employ crypto assets as reserves. There are also algorithmic stablecoins that do not require any collateral. These projects use algorithms to issue and burn tokens in an attempt to manage the number of stablecoins.

One important element that distinguishes BUSD from other fiat-backed stablecoins is that Paxos publishes regular audits demonstrating that the US dollar reserves match the supply of BUSD 1:1.

These audits are carried out by the accounting company named “Withum” in accordance with BUSD’s obligations as a regulated cryptocurrency. Not all projects implement this, and it’s possible that some fiat-backed stablecoins don’t have as many reserves as they claim.

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