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What is Binance USD (BUSD)? Complete set of BUSD cryptocurrency

Binance USD (BUSD) is one of the top stablecoins by market capitalization. In this article, we will learn what Binance USD (BUSD) is and the highlights of the project.

What is Binance USD (BUSD)?

BUSD are fiat-collateralized Stablecoins. BUSD is 100% backed by fiat and equivalent assets, it has a centralized management mechanism and buyback to maintain the stability of the token price in the market. BUSD is one of the most used stablecoins in the market.

Paxos and Binance Relationship in Launching BUSD

Binance is a crypto exchange (cryptocurrency/cryptocurrency) founded in 2017 by Changpeng Zhao in China. Currently, Binance is the world’s largest cryptocurrency exchange in terms of trading volume.

Paxos is a New York-based financial institution and technology company specializing in blockchain. The company’s product services include cryptocurrency brokerage services, crypto asset services and payment services… Paxos has a service called “Stablecoin as a Service”. They provide the infrastructure and technology so that organizations can easily create a stablecoin with their brand.

Binance used Paxos services to create stablecoin BUSD, this way Binance does not need to focus too much on the technical part and related procedures, but can completely focus on building the brand and the surrounding ecosystem. BUSD.

How does Binance USD (BUSD) work?

The stablecoin acts as an IOU (I owe you) that can be used to exchange an equivalent amount of dollars outside of the blockchain ecosystem.

BUSD’s price-holding mechanism is relatively simple when compared to other stablecoins. Each BUSD can be exchanged for 1 USD in the reserve. By sending your BUSD to Paxos, Paxos will burn the user’s BUSD and provide the user with an equivalent amount of fiat. This mechanism keeps the supply and reserves of BUSD at a 1:1 ratio constant.

Whenever the price of BUSD starts to fall below $1, arbitrageurs buy BUSD in bulk. After purchasing a large amount of BUSD, arbitrageurs can redeem the BUSD tokens for fiat money through the Paxos platform.

Pros & Cons of Binance USD

Here are some pros and cons of Binance USD (BUSD):

Advantage
BUSD is a fiat-collateralized Stablecoin that is fully backed by fiat and equivalent assets. The Peg holding mechanism of this stablecoin is simple, stable, and easy to operate under bad market conditions.

BUSD is the main application in the Binance ecosystem. Binance is being considered as one of the biggest ecosystems today, it includes: Binance exchange, BSC… Because it is “favored” to use in related ecosystems of Binance, it is fast. The growth of BUSD is extremely fast.

Defect
The biggest risk of fiat-collateralized stablecoins is in the “decentralization” aspect. In the case of BUSD, they require off-chain reserves. Funds are managed by a small number of custodians, users will have to trust these custodians to act honestly.

In addition, fiat-collateralized stablecoins have the right to blacklist an address making these wallets uninteroperable with that stablecoin. This strategy is useful in freezing the funds of hacker wallets, making it impossible for them to transfer hacked victims’ funds, but on the other hand, they show the power of these organizations to govern who may and may not interact with their stablecoins.

Compare BUSD vs USDT vs USDC

Main similarities and differences between BUSD, USDT, USDC:

The same

  • BUSD, USDT, USDC are all fiat-collateralized Stablecoins. They are 100% backed by fiat and their equivalent assets are easily exchanged for other fiat. In addition, their mechanism and management and supervision are the same.

The difference

  • The first difference is the issuing authority, BUSD is Paxos, USDC is CIrcle, USDT is Tether.
  • The next difference is the different redeem mechanism. Tether can only be redeemed by institutions such as: market makers, OTC desks, trading desks,… While BUSD and USDC can be redeemed by anyone who has gone through Paxos KYC and AML process & Circle.
  • Next is the reserve of BUSD, USDC & USDT, they reserve different types of assets with different rates. 100% BUSD reserves in cash and US Treasury bills. In the case of USDT, 75.85% of USDT is backed by cash and cash equivalents as well as commercial papers, the remaining 24.15% are bonds, secured debt and other investments.

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