Binance USD (BUSD) is a well-known stablecoin that has been utilized by crypto enthusiasts as a way to enhance their cryptocurrency trades. Unlike traditional cryptocurrencies, BUSD is designed to be resistant to market volatility, which causes drastic price changes.
Why Was Binance USD (BUSD) created?
Binance USD was created to address the issue of volatility in the crypto market. Its value is pegged to a stable currency, the US Dollar, which means that it holds a value of $1 despite market conditions.
Cryptocurrencies, such as Ethereum, have a reputation for being highly volatile, making them unreliable for payments and storage of value. For example, Ethereum’s price can fluctuate by hundreds of dollars in a single day, making it difficult for merchants to accept it as payment as the value of the payment could change significantly before they are able to convert it to a stable currency like US dollars.
What is BUSD?
Binance USD (BUSD) is a fiat-collateralized stablecoin. A stablecoin is a type of cryptocurrency designed to maintain a stable price over time. It is pegged to the value of fiat currencies like dollars or pounds.
Stablecoins like BUSD are backed by the specific assets that they are pegged to. An organisation that issues out stablecoins usually sets up a reserve at a financial institution that holds the underlying asset, or fiat currency, that it is pegged to. For example, a stablecoin could issue 100 million coins with a fixed value of $1 and, therefore, have a reserve of $100 million.
Use cases of BUSD
Similarly to other stablecoins such as USDT or USDC, the BUSD stablecoin is used in trading to minimize price volatility on crypto exchanges. It allows traders and crypto investors to hold their money on an exchange without its value fluctuating.
Exchanges: BUSD is used to move money between cryptocurrency exchanges to assist with arbitrage.
Payroll: The use of BUSD stablecoin for payrolls could be extremely effective in times when remote work beyond borders is increasing. It will cost less time and money to process payrolls for businesses and employees won’t have to worry about experiencing problems with their banks.
Safe Haven Asset: Other cryptocurrencies, such as Bitcoin, are not stable stores of value as their prices are highly volatile. This can be highly unsettling for people who need to access their crypto assets regularly. As a safe haven asset, users don’t have to worry about their money fluctuating.
Lending: Because of its high yield, BUSD is a great way for debt investors to collateralize their investments. This makes investing much more appealing.
Escrow: The process of escrow can be entirely automated using a stablecoin such as BUSD. Without the intermediation of institutions, USDD is able to automatically handle the process using smart contract technology.
Payment: BUSD can be used to complete everyday transactions. We can expect to see the use of stablecoins implemented in stores where payments are used by scanning a QR code. Businesses can benefit from this as they are able to avoid the high processing fees of traditional institutions.
Alternative to banking: Not everyone around the world has access to a bank account. With cryptocurrency, all users need is access to the internet to create their own account that they can then store BUSD in. This will help unbanked people participate in the economy.
History of Binance USD
BUSD was founded by Paxos and Binance in September 2019. Binance USD is one of the fasted growing cryptocurrencies. It reached a milestone of 20X growth in only 20 months.
In March 2020, a year after its launch, BUSD already had a market cap of $100 million which was an accurate indicator of how successful the stablecoin would become. By January 2021, it had a market cap of $1 billion. In the 20 months that followed, the market cap of BUSD exploded. By September 2022, BUSD had reached a market cap of $20 billion.
Pros and Cons of Binance USD (BUSD)
Pros
Faster transaction speed: Transacting funds through banks can be tedious due to the lengthy processing times. This is especially true when transacting across borders. BUSD cuts down majorly on these times, with transactions processing in as little as 5 minutes.
Borderless: The ability to be an anonymous and borderless store of value makes an algorithmic stablecoin a necessity for the real world in places experiencing extreme inflation with their fiat currency or sanctions such as Venezuela as they cannot use their own currency to emigrate or transact across borders.
Stable value: People from countries whose currency is prone to extreme fluctuations benefit by holding their funds in a store of stable value.
Transparent: Transparency means that transactions can be viewed by anyone on the internet. This is useful as it dispels any confusion as to where funds are going.
Lower fees: The price to transfer funds across borders tends to be highly expensive. Because BUSD mitigates middlemen, it is able to offer low-fee transactions.
Cons
Security: Trading platforms and crypto wallets are highly exposed to hacker threats. Although there are safety measures that can be taken to convolute the threats, the risk is still big because unlike traditional banking, crypto transactions cannot be reversed.
Counterparty risk: As a result of being “decentralized”, multiple parties are involved in the management of a stablecoin. For the coin to maintain its value, all the parties involved need to be properly performing their tasks (security, reserving properly, etc).
Reserve risk: Without reserves being secure, the coin issuer cannot guarantee the value of a stablecoin with full confidence. Reserves are vital as they are the final backer of a stablecoin’s value.
Lack of confidence: The price of a stablecoin can fall if traders lose confidence in its ability to maintain the peg. This usually happens when a stablecoin is not sufficiently backed by hard assets or cash, as it could suffer a run and lose its peg against its target currency.
List of Popular Stablecoins
USD-pegged
Tether (USDT)
USD Coin (USDC)
True USD (TUSD)
Reserve (RSV)
DAI
Paxos Standard (PAX)
sUSD
Gemini Dollar (GUSD)
Origin Dollar (OUSD)
GBP-pegged
Binance GBP Stable Coin (BGBP)
EUR-pegged
Stasis Euro (EURS)
Turkish Lira (TRY)-pegged
BiLira (TRYB)
Korean Won (KRW)-pegged
Binance KRW (BKRW)
Gold-backed
Tether Gold (XAUt)
Paxos Gold (PAXG)
CACHE Gold (CACHE)
Other
Petro (PTR) (oil-backed)
Where To Buy Binance USD (BUSD)
You can trade Binance USD on major crypto exchange platforms. You are able to buy, sell or use the BUSD stablecoin for trading on both centralized and decentralized exchanges.
Centralized exchanges:
1. Binance
2. Coinbase
3. Huobi Global
Decentralized exchanges:
1. Uniswap
2. Crypto.com
3. Pancakeswap
Before buying cryptocurrency, users need to know the risks involved. Because centralized exchanges hold your private keys, you are at risk of losing access to your assets if there is a hack. Holding your cryptocurrency in your own hardware crypto wallet is recommended, however, you put yourself at risk of losing your assets forever if you lose your private key or are targeted by hackers unknowingly. In any case, it’s important to do your research before investing in any crypto project; this article is for guidance only and should not be seen as investment advice.
