What is Binance USD (BUSD)? A Stablecoin Cryptocurrency
Binance USD is a stablecoin that makes a fitting contestant against Tether (USDT). So, what is Binance USD? Let's take a closer look.
The volatility of cryptocurrencies is a double-edged sword. Even if traders see the benefit of trading Bitcoin-altcoin pairs, Bitcoin still sees major movements when compared to the world’s most popular reserve currency, the US dollar.
This is why stablecoins have been invented. Combining the security of blockchain technology and pegging the value of the token to the US dollar, traders are able to hedge against all of cryptocurrency’s sudden price movements, allowing them to accurately gauge their profitability.
Binance USD, or BUSD for short, is one of the most popular stablecoins in the crypto space, along with Tether (USDT), USD Coin (USDC), and the Ethereum-collateralised Dai tokens (DAI). Like the other stablecoins, Binance USD is pegged 1:1 with the US dollar, where 1 BUSD = 1 USD.
It seems that the crypto space is known to offer so many different options, even assets that cost the same. Why would you choose BUSD, and not USDT, for example? Well, as you will learn, BUSD has its perks.
Read more: What are stablecoins and how do they work?
What is Binance USD (BUSD)?
As you already know, Binance USD is pegged 1:1 with the US dollar, and new BUSD is issued by Binance, a digital asset trading company.
Interestingly, at the time when Binance launched their new stablecoin, the company had already developed its own blockchain, called the Binance Smart Chain, with its own native token, Binance Coin (BNB).
While the BUSD can obviously operate on the Binance Smart Chain as it complies with the BEP-2 standard, it was built on Ethereum, thus classifying it as an ERC-20 token. What does this even mean? We’ll show you why this is good news for the holders in upcoming sections.
Of course, Binance wasn’t the first to issue a stablecoin. Binance USD first came into circulation in September 2019, which is almost five years after the first stablecoin was issued, Tether (USDT). Even if you can say that 1 BUSD equals to 1 USDT, Binance USD can be considered to be a third-generation stablecoin.
We say this based on the story behind Binance USD, from its regulatory compliance to security.
Why was Binance USD invented?
BUSD may have been invented to serve the corporate interest of Binance, rather than as a reaction to the problems that are involved with preceding stablecoins. Regardless, BUSD seems to have solved the inherent lack of trust with the earlier stablecoins like USDT and USDC.
BUSD was not simply issued by the company and exchanged for real USD dollars. There was an elaborate process to ensure that BUSD follows regulatory frameworks set by the governing body that issues the US dollar itself.
BUSD was made in partnership with crypto-based custodian bank Paxos that has had a long history of compliance with the New York State Department of Financial Services. Technically speaking, Paxos is actually the issuer of BUSD, not Binance, since all the US dollars that backs up the BUSD is kept in its custody.
This is wildly different from Tether, where the US dollars are kept in off-shore accounts, possibly to reduce taxation and operate under lighter regulations. Of course, that didn’t go too well with Tether Ltd., and the company suffered accountability issues since 2018.
Paxos as the USD custodian for Binance’s stablecoin also follows the typical rules set for FDIC-insured Trust Companies. For example, they do monthly audits of the custodial bank reserve with accounting firm Withum.
Despite being a better option in this regard, Tether remains to be the most popular stablecoin, possibly due to “a good branding”.
Binance USD is secure, because it is centralised
BUSD’s security and regulatory compliance comes with a price, however. Die-hard fans of decentralised finance will see BUSD more as a threat to the crypto space.
Even though the stablecoin is widely accepted, for instance, as collateral for leveraged trades, financial activities involving BUSD and Paxos are possibly monitored.
We say ‘possibly’ because we are not sure how exactly regulatory bodies come to do so. However, in the company terms and conditions, Paxos iterates that it has the ability to freeze accounts.
“We may freeze, temporarily or permanently, your use of, and access to PAX and/or BUSD or the US dollars backing your PAX and/or BUSD, with or without advance notice, if we are required to do so by law, including by court order or other legal process.
There is a slight disconnect between users who use BUSD, a regulated stablecoin, on popular decentralised exchanges like Uniswap, but it is what it is.
Add BUSD to your crypto wallet: Click here to buy Binance USD (BUSD).
Other key benefits of holding Binance USD (BUSD)
Being an ERC-20 token, Binance USD can easily be stored in popular Ethereum wallets like MetaMask and Exodus. Being pegged 1:1 with the US dollar by direct means, rather than through a complicated crypto collateral system that keeps the DAI stable, the BUSD stablecoin is a popular choice to transact on Ethereum.
This means you do not have to convert your US dollars into ether (ETH) to purchase goods on decentralised marketplaces on Ethereum, or use services that require Ethereum. Knowing the dollar value of the BUSD makes things easier to spend, and more importantly, to budget.
Advanced traders who often go to Binance to trade digital assets can increase their risk level by leveraging trading, which uses the BUSD as collateral. This high-risk-high-reward activity is particularly the reason why BUSD is widely used on the Binance platform. However for regular traders, USDT seems to suffice.
How to buy Binance USD
Now that you know the basics of BUSD, consider using it to trade currency pairs or crypto pairs on your favorite platforms. At very minimal fees, Easy Crypto can send BUSD into wallets that support the stablecoin.
Looking to buy stablecoins? Read our guide on how to buy stablecoins on Easy Crypto.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated February 2, 2023