Cryptocurrencies pegged to a traditional currency (stablecoins) have become an important element of the entire cryptocurrency ecosystem. They are exchange trading, settlements are carried out, it is used in investments in decentralized finance. Users use them to protect against fluctuations in the rates of other digital currencies.
But claims are constantly made against stablecoins because of their opacity, registration in offshore companies, and the inability to confirm the presence of reserves. To solve this problem, the largest cryptocurrency exchange Binance decided to issue its own coin, which will be completely transparent, will be able to confirm the presence of dollars in reserves, and regulators will not have any claims against it. This is how Binance USD was born.
Let’s take a look at how the third largest stablecoin, BUSD, works and whether it can be trusted.
History of Binance USD Cryptocurrency
The coin was created in 2019 by the joint efforts of the Binance exchange and Paxos, which specializes in blockchain technologies and the digitization of financial assets. She previously created the Paxos Standard (PAX) stablecoin. Paxos officially operates in the United States, its activities are licensed, so Binance USD received a license from the Department of Financial Services in the State of New York.
The coin became the second cryptocurrency of the Binance exchange, the first in 2017 was Binance Coin (BNB). Since the introduction of the stablecoin, the exchange has been making BUSD a part of its ecosystem, balance calculations have been transferred to this cryptocurrency, and platform customers receive additional benefits for its use. Binance quickly created almost 50 trading pairs with the new stablecoin, and futures began trading over time, pegged to this coin.
Before BUSD, the exchange already had a stablecoin with a price pegged to the pound sterling. But he turned out to be unpopular, and bidding with him stopped.
Features of the BUSD coin
Cryptocurrency has a number of differences from its competitors operating in the same field of stable digital currencies pegged to the dollar. The creators promote it as the most honest stablecoin in the industry, which can be trusted more than any other.
BUSD is not an algorithmic stablecoin, which means it has dollar reserves. Each coin is backed by one dollar. Cryptocurrency can be freely exchanged for the dollar, so when it is no longer needed, users can sell it for traditional money in return. When a cryptocurrency is needed, it is bought with money that falls into reserves, and in return BUSD coins are issued at a rate of 1 to 1.
The presence of such reserves in all stablecoins is a subtle point. Some companies can’t prove they exist or hold reserves in illiquid assets like bonds. Binance has focused on transparency and accountability to regulators in its coin. Every month, BUSD reserves are independently audited, which shows whether the reserves correspond to the issued number of coins. Usually they are carried out by the auditing company Withum. The same company checks other cryptocurrencies from Paxos.
The correspondence of the number of issued coins is controlled by Paxos and a special smart contract based on Ethereum. BUSD and PAX reserves are kept separate, money is not mixed, and cryptocurrencies are audited separately.
To satisfy the regulators, the developers of the cryptocurrency had to sacrifice the principle of decentralization. Paxos has to deal with the coin under New York State banking laws. The company had to reserve the right to block suspicious transactions. There is no such possibility in any truly decentralized cryptocurrency.
To do this, the “setLawEnforcementRole” function has been introduced, through which regulatory authorities can block transactions suspected of money laundering or terrorist financing. Paxos says it is not planned to be used without instructions from law enforcement.
What is Binance USD used for?
The cryptocurrency runs on the Binance Smart Chain and Ethereum blockchains, which allows it to be used as widely as possible. Main uses:
- Reducing commissions when trading on the Binance exchange
- Protection of funds from exchange rate fluctuations without their withdrawal into fiat money
- Investments in loan products with a yield of up to 15% per annum
- Transfers between people without the risk of losing money due to fluctuations in exchange rates
- Trading on centralized and decentralized exchanges
As the work progressed, the cryptocurrency began to have partners expanding its scope of use. Major payment service BitPay has added BUSD to its list of supported instruments. Now you can pay in this coin to many merchants working with BitPay. Among them there are large sites like Amazon. The founder of the Binance exchange promised to constantly expand the scope.
After the appearance of the coin, it quickly began to gain popularity, it began to be actively used in all possible directions. By the fall of 2022, its capitalization reached $20 billion and continues to grow. The fall of the cryptocurrency market this year did not greatly affect the capitalization, users continue to come, and the number of coins in circulation and money in reserves continues to grow.
Comparison with other stablecoins
Cryptocurrency entered the stablecoin market when there were already strong players on it, each of which had its own user base. It is usually difficult for a new coin to move in such conditions, but BUSD had its own strong advantages.
Tether (USDT) was and remains the largest of the stable cryptocurrencies. Its weakness has always been opacity. The developers claimed that they had reserves in dollars, but for years they could not confirm this fact. Speculation has already begun that the cryptocurrency is not backed by anything and is a “bubble”. Later, the developers nevertheless conducted an independent audit and showed the presence of reserves, but in addition to money, debt securities of the Bitfinex exchange were found in them. The default of this exchange could significantly reduce the reserves and “untie” its exchange rate from the dollar. Also, the developers of this cryptocurrency were constantly sued, its use was banned in some countries. All this left a negative imprint and a damaged reputation.
USD Coin (USDC) had no problems with reputation and feels relatively good in the market. There is also a large exchange behind it, Coinbase, but it has not been promoting its coin as actively. However, USDC is much older and outpaces Binance USD in terms of capitalization by several times. It grew even before the advent of BUSD due to the demand for such assets and the problems of the main competitor, Tether.
Pax Dollar (USDP) has an impeccable reputation, is also regulated in the US. But it has a capitalization 20 times less than BUSD. The main problem with this cryptocurrency is that there is nothing behind it. There is no exchange that could actively promote it in their services, as Binance does.
Where to buy and store BUSD
The main trading platform is the Binance exchange itself. In addition to it, small trading volumes are found on the following sites:
To buy cryptocurrency on any of them, you will have to register, replenish the balance, and go through verification. Then it will be possible to make transactions on the trading page. You can also purchase this coin in most popular exchangers or on decentralized exchanges.
Now BUSD is in 6th place in terms of capitalization, so most large wallets support working with the coin. Suitable MetaMask, Trust Wallet, hardware Ledger and Trezor.
Advantages and disadvantages of cryptocurrency
Binance USD has strengths that have seen it actively adopted and gaining a user base:
- Completely transparent operation
- Accountability to regulators
- Many ways to use on the largest crypto exchange
- Low transaction fees
- Good reputation and strong development companies
There are also disadvantages due to which BUSD cannot be called ideal:
- Centralization and lack of anonymity
- Small selection of exchanges for trading
- Volatility in fiat currency reserves
The dollar used to be a reliable store of value, but that has changed. In 2022, inflation began to rise and now Binance USD will depreciate along with the dollar.
Who is the Binance USD Cryptocurrency for?
The course of the coin does not move up or down, which makes it pointless to buy it to profit from the growth of quotes. For everything else, cryptocurrency is good. Especially its use makes sense for those who trade on Binance and use the services of this exchange.
Thanks to transparency and constant audits, there is no doubt about the reliability of BUSD. The coin maintains a good reputation and grows the number of users faster than any competing cryptocurrency. BUSD is not an algorithmic stablecoin, so a situation like that happened with Terra (LUNA) cannot happen to it.
The materials presented in this section do not constitute individual investment advice.