Stablecoins have solidified their identity as one of the most significant crypto assets among investors, traders, and common crypto enthusiasts. The primary goal of stablecoins focuses on encouraging crypto adoption through resolving the concerns regarding volatility and regulation of cryptocurrencies.
Interestingly, a few selected options, such as Binance USD, have proved that regulation is possible in the case of stablecoins. What does the stablecoin by Binance offer, or how is it different from other stablecoins available in the market? The following post offers you an introduction to BUSD, the Binance stablecoin, alongside offering a deep dive into its applications. You can learn more about the history of the stablecoin by Binance and the reasons for which it has gained popularity.
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What is BUSD?
The evident highlight in any discussion on the new stablecoin issued by Binance would refer to its definition. What is BUSD (Binance USD)? The answer paints it as a fiat-backed stablecoin, developed by Binance and Paxos, with a backing of a 1:1 ratio against the US Dollar. Therefore, a single unit of BUSD is similar in value to a single US Dollar, and its value fluctuates along with USD. In addition, the Binance stablecoin also maintains a report of reserves, subject to audits every month, while following strict regulatory standards. The compliance with regulatory standards in Binance stablecoin offers credible support in ensuring the safety and security of user assets.
The stability of a Binance USD chart is one of the important indications for instilling confidence in crypto users and traders. It can help users enjoy the flexibility for transactions with other digital as well as blockchain-based assets. Without the problems of volatility, crypto owners could enjoy the ability to interact with different types of blockchain-based assets. On top of it, the Binance stablecoin can also serve as a viable alternative for hedging against market volatility.
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History of BUSD Coin
The introduction to Binance stablecoin would also shed light on the history leading up to its development. Binance, a leading cryptocurrency exchange, announced the plans to launch its own stablecoin in September 2019. The crypto exchange developed the new stablecoin in collaboration with Paxos, which is a regulated financial institution associated with issuing digital assets. Paxos found its roots in 2012 and started off as a fintech company based in New York under the regulation of the New York State Department of Financial Services.
Subsequently, Paxos launched PAX, a digital asset under the regulation of a US state. The success with PAX set the foundations for BUSD stablecoin and introduced a significant milestone for the crypto exchange. For example, the Binance stablecoin is one of the first stablecoins to have skipped the Ethereum blockchain. While the majority of stablecoins are developed on Ethereum, the Binance stablecoin has been created on the Binance Chain. Furthermore, the aggressive marketing by Binance and an easy alternative to popular Ethereum-based stablecoins served as a plausible boost to its popularity.
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Popularity of BUSD
The popularity of a stablecoin by Binance also showcases how it can set some new benchmarks in developing stablecoins. Binance implemented a strategic initiative by launching a stablecoin on their blockchain and showed that Ethereum is not the only platform for making stablecoins. In addition, the demand for BUSD cryptocurrency has been growing gradually since its inception.
Interestingly, the market capitalization of the Binance cryptocurrency has experienced growth of 1360%. At the beginning of 2021, the market cap for the Binance stablecoin amounted to almost $1 billion. By the end of 2021, the market cap has surpassed $14.6 billion, thereby showcasing the demand for fiat-backed stablecoins, which are not based on the Ethereum blockchain.
The rapid adoption of new, innovative products in the crypto space, such as DeFi and NFTs, provides the foundation for the popularity of Binance stablecoin. Almost more than one million people already own BUSD, and the early adopters have reeled in crucial value advantages. Many of the early adopters like the stablecoin for the assurance of usage in different DeFi activities.
On top of it, the popularity of the Binance stablecoin has been driven largely by its ability to reduce the gaps between DeFi and traditional finance. Why? The stablecoin offers better monetary flexibility and freedom, unlike other traditional institutions or currencies. Furthermore, the stablecoin can also safeguard users from concerns of inflation alongside offering attractive APYs, employed for DeFi services. The Binance USD owners could also enjoy the benefits of liquidity pools and yield farming, along with the benefits of additional safeguards from risks and uncertainties.
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Working of Binance USD
The next significant detail in guides on “what is BUSD (Binance USD)” would refer to the working of the stablecoin. It has been developed by Binance and Paxos in a move to offer a stablecoin that does not use Ethereum. Paxos leverages blockchain for offering Stablecoin-as-a-Service products to different external companies.
Most important of all, Paxos has been successful in creating an asset-backed stablecoin, such as PAX Gold or PAXG, backed by gold. You must also notice a significant detail about the working of BUSD stablecoin in the regulatory authority. The regulatory authority for Binance stablecoin and PAXG tokens is the New York State Department of Financial Services.
From a technical perspective, the working of the Binance stablecoin presents it as a fiat-backed stablecoin, maintaining a 1:1 ratio with the US Dollar. Paxos holds an equal amount of US dollars as the total supply of Binance stablecoin as reserves in its custody in different FDIC-insured US banks. The reserves of BUSD Binance stablecoin can also have the backing of US Treasuries. The pricing of the Binance stablecoin would fall or rise with similar trends in the case of US Dollar.
Value-Based Attributes of BUSD
You can notice three significant attributes with the Binance stablecoin in the form speed, accessibility and flexibility. The benefit of accessibility is evident in the ease of access through Binance or Paxos. You can get your hands on the Binance stablecoin by using the Binance exchange or fiat exchange services. On the other hand, you can choose the method of sending a specific amount in US Dollars to Paxos. Subsequently, Paxos can help in minting new BUSD tokens according to your requirements.
The Binance USD chart could also serve as a helpful instrument for the flexible conversion of crypto assets into stable assets. On top of it, Binance stablecoin also guarantees flexibility for faster money transfers across borders with minimal cost. Paxos presents BUSD on the Ethereum blockchain while Binance serves a Binance-Peg BUSD token on BNB Chain.
Binance develops the stablecoin through the BEP-20 standard by accommodating Binance USD on a specific Ethereum address. Then, Binance would just mint the peg stablecoin tokens. Each peg token would correspond to the tokens in the Binance reserve, and owners can swap the tokens among different chains according to their requirements.
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Regulations in BUSD
The important details regarding the Binance stablecoin would also shed light on the significance of regulations. Paxos, Binance, and the stablecoin come under the supervision of New York state regulators. The regulators have imposed many critical measures for facilitating the operations of a stablecoin.
Apart from ensuring complete collateralization of the stablecoin token, Paxos also follows regulations in ensuring control over the process of creating and burning BUSD cryptocurrency tokens. Paxos also reserves the right to freeze accounts and remove funds in event of any illegal activity.
The principles for the regulation of the Binance stablecoin should also ensure compliance with New York banking laws and the Trust Charter. At the same time, the regulatory aspects of the Binance stablecoin also focus on the use of a new function. All the smart contracts of the stablecoin utilize the ‘SetLawEnforcementRole’ function for facilitating stablecoin regulation.
The small function in the stablecoin smart contract helps Paxos for ensuring compliance with NYDFS regulations. At the same time, you must also notice that the BUSD Binance tokens issued by Paxos follow the regulations. On the contrary, Binance stablecoins issued on the BNB Chain work independently of regulations by Paxos or the NYDFS.
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Use Cases for Binance Stablecoin
The discussion on Binance USD would also present conclusive indications towards the user cases. An overview of the features and attributes associated with the Binance stablecoin shows their potential for serving multiple use cases. Traders, investors, and general crypto enthusiasts can capitalize on the distinct traits of the Binance stablecoin to achieve value-based benefits. Here are some of the notable reasons for which Binance stablecoin serves as a vital alternative to many other stablecoins.
Stay Away from Price Volatility
The world of crypto has been synonymous with volatility, considering the massive fluctuation in the pricing of cryptocurrencies. However, stablecoins like the BUSD can offer safety from volatile market periods. Traditional investors look for the conversion of assets into securities or fiat currency during volatile periods in the market. The Binance stablecoin offers the exact opportunity for crypto owners and investors.
One of the promising use cases of Binance stablecoin would refer to arbitrage trading. The Binance stablecoin is a popular stablecoin and could provide reasonable arbitrage opportunities with the price difference among multiple automated market makers. Ownership of the stablecoin can help easier the movement between exchanges with the usability of Binance stablecoin across multiple platforms.
Another reason to look up BUSD stablecoin would refer to the access to liquidity. Crypto owners could quit a particular investment and safeguard their profits without the need to transfer fiat currency from exchanges. With the Binance stablecoin by your side, you don’t have to worry about fiat funds in your account for purchasing a new asset.
The next notable reason for choosing the Binance stablecoin would refer to the facility of multi-assets mode. You can rely on BUSD for the facility of trading with multiple contracts at a specific point in time. In addition, the accessibility and interoperability of the token also help traders with the benefits of flexibility, ease, and speed. The ‘Multi-Assets Mode’ feature in the Binance stablecoin also offers the facility of trading with stablecoins, thereby offering additional protection and flexibility.
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The introductory overview of the BUSD Binance token shows that it is a revolutionary asset in the stablecoin category. For example, the Binance stablecoin showcases the possibilities of designing stablecoins on blockchain networks outside Ethereum. In addition, the Binance token also presents the example of a highly regulated stablecoin with the same or even better security than other stablecoins. The advantage of strict compliance presents a conclusive highlight for the Binance stablecoin and differentiates it from others.
At the same time, the secure backing by cash equivalents also ensures more trust in the Binance stablecoin. Furthermore, the Binance stablecoin also brings the assurance of lower fees during transactions and withdrawals. The applications of Binance stablecoin across various DeFi use cases prove the potential of the new digital asset. Most important of all, the elusive growth of 1360% within a limited period of time serves as a massive highlight for the company. Start learning more about the Binance stablecoin in detail.
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*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!