What are Stablecoins?
Stablecoins are cryptocurrencies that equate a reference asset's value and are always pegged to it. Examples of these assets are fiat currencies, gold, or any other less volatile value. Stablecoins are mostly pegged to fiat currencies, especially stable currencies like the US dollar or the British Pound, because of how less volatile these currencies are. Stablecoins aim to provide an alternative to the volatility of widely used cryptocurrencies, such as Bitcoin and Altcoins. Stablecoins empower traders and cryptocurrency investors to transact with others in a fast and secure way on the blockchain while reducing volatility risk. Due to the volatile nature of cryptocurrencies, cryptocurrency holders may see volatile fluctuations in the value of their cryptocurrency portfolio. Using a stablecoin such as BUSD, USDT, or USDC can considerably help to hedge against market volatility. Most widely used stablecoins like USDT, BUSD, and USDC are pegged to the USD price that is backed up with dollar reserves that equate to the amount of the stablecoins in circulation.
What is Binance USD Stablecoin (BUSD)?
Binance USD (BUSD) is an Ethereum blockchain-based (ERC-20) cryptocurrency pegged to the US dollar. BUSD was developed from the collaboration of Binance and Paxos. Paxos is a New York-based financial institution and technology company specializing in blockchain. The company’s product offerings include a cryptocurrency brokerage service, asset tokenization services, and settlement services. BUSD issuance is managed by Paxos, Paxos has the power to produce and destroy BUSD tokens at will, as well as to freeze and take money from anyone who engages in shady or illegal activities like money laundering. Because of its adherence to stringent regulatory criteria, BUSD is also regarded as a trustworthy and stable crypto-financial instrument. Officials from the New York State Department of Financial Services (NYDFS) are in charge of implementing particular regulations and restrictions on Paxos and Binance about how the stablecoin functions, is backed, and how it's collateralized.
Binance developed a wrapped version of BUSD stablecoin on the Binance Beacon Chain(BEP-2) and BNB Chain (BEP20) blockchains for transactions. There are wrapped versions of BUSD on other blockchains like Avalanche, Velas, Harmony, Solana, and Polygon blockchain. It is important to know that, Paxos-issued BUSD and Wrapped BUSD on other blockchains are different. Wrapped BUSD is not issued by Paxos nor regulated by the New York Department of Financial Services (NYDFS). Paxos and NYDFS are not responsible for wrapped BUSD, only responsible for the BUSD on the Ethereum blockchain (ERC-20).
BUSD became a popular stablecoin choice in the cryptocurrency markets primarily to Binance's extensive use of it as trading pairs to cryptocurrencies and other services connected to the Binance Exchange. Major DeFi platforms, crypto wallets, and other services not under Binance's control have massive support for BUSD stablecoin. BUSD is 100% backed by reserves held in either or both Fiat cash in dedicated omnibus accounts at insured US banks and/or US treasury bills (including through repurchase agreements and/or money-market funds invested in US treasury bills). BUSD can be issued and redeemed without any fee. The total supply of BUSD equates to the total dollar reserve, therefore BUSD price is always pegged to the US dollar price. BUSD was developed to maintain stability despite the volatility in the cryptocurrency market and it should always maintain the dollar peg. This gives traders and investors the confidence to make a variety of high-risk investments without skepticism and to protect their finances from market volatility. BUSD has emerged as the third-largest cryptocurrency stablecoin and the sixth-largest cryptocurrency asset by market capitalization. BUSD has a market value of approximately 21.6 billion US dollars as of October 2022. Due to insufficient reserves, not all stablecoins can keep their peg during volatile cryptocurrency market conditions. The dollar reserve transparency of BUSD brings confidence to traders and investors.
Features of BUSD
High Liquidity
High liquidity is offered by BUSD on the Binance Exchange. Cryptocurrency traders can easily convert their money from their local currency to BUSD. Traders can also easily convert other cryptocurrencies to BUSD and vice versa. Traders can comfortably trade newly-listed tokens on Binance Exchange without skepticism due to assured liquidity in the trading pair with BUSD.
Zero Trading Fees on BUSD Trading pair
Binance offers zero trading fees when a trader trades a cryptocurrency token with BUSD (Token/BUSD). The Binance exchange supports more than 300 BUSD spot and margin trading pairs, traders can trade these pairs with no extra trading fees on Binance Exchange. BUSD can be issued and redeemed without any fee.
Currency for trading NFTs on Binance
Binance has a marketplace for NFTs and BUSD token is one of the supported tokens on Binance NFT Marketplace. NFT traders can use BUSD to buy and bid for NFTs and also list their NFTs in BUSD and sell their NFTs in BUSD.
Transparency
BUSD is transparently completely backed with dollar reserves with an amount equal to BUSD's total supply. This dollar reserve is held and managed by Paxos and regulated by NYDFS. Binance offers monthly audited reports on the Paxos-managed dollar reserve. Users are able to independently confirm the integrity and accuracy of the BUSD supply and the USD reserves anytime. The confidence of traders and investors in utilizing BUSD is increased by this transparency.
Financially Regulated
The BUSD is governed by the New York Department of Financial Services (NYDFS), and the financial regulator regularly examines all BUSD operations. NYDFS makes sure that Paxos's dollar reserve is fully funded at all times. This financial regulation boosts the confidence of cryptocurrency investors and traders, fully eliminates BUSD volatility, and transforms BUSD into a dependable store of value.
BUSD Utilities
- Traders can trade the BUSD with any cryptocurrency on centralized and decentralized exchanges.
- BUSD serves as digital dollars and you can transfer your BUSD to anyone in minutes with a very small transaction fee on the blockchain.
- Decentralized Exchange and Centralized Exchanges offer staking services on BUSD and users can earn interest on staking their BUSD over a while.
- Businesses, e-commerce stores, and NFT marketplaces now accept BUSD stablecoin as a payment method.
- BUSD can also be used as collateral when loaning a cryptocurrency asset on Binance and some other cryptocurrency exchanges.
- BUSD can also be used as a cross-collateral in futures trading.
- Investors can safely save their money in BUSD in centralized exchanges and decentralized wallets without the fear of volatility.
Summary
Volatility in cryptocurrency has been a concern to cryptocurrency traders and investors, and BUSD stablecoin came to this aid. Investors can save their money in BUSD and use it for financial services. BUSD has a range of utilities. BUSD stablecoins serve as a link between centralized and decentralized exchanges; on centralized exchanges, they are a well-known trading pair, while in decentralized exchanges, they are utilized to provide liquidity to new cryptocurrencies. With BUSD, users have access to a level of financial independence that is not possible with fiat currencies. Users can send money quickly and cheaply to any location in the world. Paxos-issued BUSD is financially regulated, this financial regulation boosts the confidence of cryptocurrency investors and traders, fully eliminates BUSD volatility, and transforms BUSD into a dependable store of value. BUSD stablecoin is also very transparent, users can independently confirm the integrity and accuracy of the BUSD supply and the regularly audited dollar reserves anytime.
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