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What is Binance USD (BUSD)? All about BUSD

11/06/22
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BUSD is one of the core products in the Binance ecosystem. It is in the top 3 stablecoins in the nascent crypto market.

Stablecoin is an indispensable lego part of the crypto space. BUSD is one of the top stablecoins in terms of market cap. In this article, we will find out everything about Binance USD (BUSD) and its notable key features.

What is Binance USD (BUSD)? 

Binance USD (BUSD) is a fiat-backed stablecoin that is pegged to the U.S. dollar. This means 1 BUSD is equivalent to one U.S. dollar. BUSD is now one of the market-cap stablecoins in the crypto market. It was founded by Paxos and Binance. 

Binance USD (BUSD)

Binance is the largest crypto exchange in the world by trading volume. It was founded by Changpeng Zhao who is a crypto billionaire. He also created the BNB Chain (BNB) (formerly Binance Chain) which is the second-largest smart contract platform behind Ethereum in terms of market capitalization.

Changpeng Zhao's quote on Paxos

Paxos is a U.S-based company providing blockchain-focused services, including stablecoin issuance. Its strategic product is Stablecoin as a Service with which Binance is in partnership. Besides BUSD with Binance, Paxos issues the stablecoin USDP and gold-pegged stablecoin PAXG. 

Paxos

To maintain the U.S. dollar peg, Paxos holds an equal amount of U.S dollars in its reserves regulated by the U.S. government. BUSD is also affected by monetary inflation since it is pegged to the U.S. dollar at a 1:1 ratio.

BUSD Supply

As depicted in the chart, the BUSD supply has been drastically increasing in the 2021 bull run. The market cap rose from $1B to over $14B in just one year. By contrast, BUSD seems to be slowing down into 2022.

Understanding BUSD

What blockchain is BUSD on?

BUSD can be considered as a multichain stablecoin since it exists in more than two blockchain platforms, including Ethereum, BNB Smart Chain, Solana, Astar, Harmony, etc. It is available primarily on Ethereum and BSC with a supply of 13.1B and 4.8B, respectively. 

On other blockchains, the supply of BUSD is just tens to a few million. Users can bridge BUSD to other platforms for usage with a few clicks, creating liquidity fragmentation.

BUSD on Ethereum, BSC, Solana, etc. Source: DeFiLlama

Notable features of BUSD

  • No redemption fees: Binance and Paxos charge no fees for redemption and they are easily accessible.
  • Global transfer: Thanks to blockchain technology, users are able to transfer BUSD globally. They only have to pay a small amount of transaction fee in BNB or ETH, depending on the selected network.
  • Compliance with U.S. regulations: BUSD is issued via Paxos, a New York-based company with approvals from local authorities. Readers can check the attestations through the following link:
BUSD Attestations. Source: Paxos

What is BUSD used for?

Many utilities in the Binance ecosystem: BUSD is backed by Binance so it is preferred in many products launched by Binance. For example, users have to pay BUSD for allocated IEO/IGO subscriptions on Binance Launchpad. In addition, BUSD can be used in savings with the estimated APY of 10% on Binance.

Earn with BUSD

As a medium of exchange in the crypto space: BUSD is widely used by BNB Chain supporters. The stablecoin is mostly available on Ethereum and BNB Chain. Therefore, it is used in DeFi applications such as collateral in lending/borrowing protocols or derivatives markets.

Hedging the portfolio in fluctuating markets: During the market selloffs, stablecoins like BUSD are good places to prevent the portfolio from plunging. However, BUSD is a USD-pegged stablecoin that is still impacted by the inflation rate.

Fast deployment: Users can swap BUSD for other cryptos/tokens directly on exchanges. Only a few clicks are needed to complete a transaction.

How does BUSD work?

BUSD uses the mint-and-burn working principle, similar to other centralized stablecoins (USDT and USDC). This mechanism maintains the USD-pegged stablecoin at a 1:1 ratio.

  • To mint new BUSD, users can send US dollars to Paxos or use the Binance Fiat wallet.
  • To redeem BUSD for US dollars, they can go to Paxos and convert BUSD.
How does BUSD work?

BUSD vs. USDT vs. USDC: What is the difference?

Stablecoins like USDT, USDC, and BUSD are considered centralized stablecoins since they use the mint-and-burn mechanism controlled by centralized entities like Tether, Circle, and Binance. 

USDT vs. USDC vs. BUSD

As described in the above comparison, USDT is leading the race while USDC and BUSD are catching up. There is more room for USDC and BUSD to grow in the future in terms of the number of integrated chains and the supply.

Total Supply of top 3 stablecoins

What is a BUSD Wallet?

Since BUSD is a blockchain-based stablecoin, it can be stored on various supported blockchain platforms. At the time of writing, BUSD mostly existed in the ERC20 and BEP20 token standards, while its supply is not significant in the standard of other blockchain platforms.

Here are some widely used methods for storage:

  • Exchange Wallet (Custodial): BUSD will be put on the exchanges such as Binance without the passphrase. Holders having their crypto assets on centralized exchanges will be able to use the services/products provided by the exchanges.
  • Hot Wallet: USDC will be stored on the blockchain and users can access it with a passphrase (seed phrase) via non-custodial wallets such as MetaMask, Coin98 Super App (Multichain), Trust Wallet, etc.
  • Cold Wallet (Hardware Wallet): Your private key will be stored in a physical device (it might look like a USB drive). To use the crypto wallet, you will need to connect the device to the internet via computer or mobile device. This method keeps your crypto wallet safe from online attackers.

How to buy BUSD

BUSD has a circulating supply of $18B (approx. 18B BUSD) and is mainly used on BNB Chain. As a result, it is exclusively supported by Binance. If you want to purchase BUSD, here are some fast ways.

  • Purchase 1:1 with USD via wire transfer.
  • Convert other stablecoins (USDT, USDC, TUSD, PAX, etc.) for BUSD.
  • Trade cryptos for BUSD on the exchange.
How to buy BUSD

Besides direct purchases on Binance, users can use DEXs on BNB Chain, such as Pancakeswap, to trade other cryptos for BUSD. Please note that there will be a small transaction fee involved.

Where to buy

Coin98 Exchange 2.0 also supports trading BUSD. Users can swap coins/tokens directly with AMMs on various blockchains at ease. Explore the Coin98 Exchange 2.0 here: How to use Coin98 Exchange 2.0

BUSD FAQs

Is BUSD safe?

After the fast collapse of the algorithmic stablecoin UST and LUNA, every crypto native is aware that the market is still unsafe. Every investment, including BUSD, has a certain level of risk. But we should manage the risks and do our own research before making investment decisions.

Is BUSD a stablecoin?

In crypto parlance, a stablecoin is a type of asset that is issued on the blockchain and is pegged to other assets such as fiat money or gold. As a result, BUSD is considered a US dollar-pegged stablecoin.

Is BUSD ERC-20 Token?

As mentioned in the article, BUSD mostly exists in two types of token standards which are ERC-20 and BEP-20. In addition, it is also available on other blockchain platforms such as Solana, etc. However, the token supply on those blockchains is way smaller than that on Ethereum and BSC. 

How stable is BUSD?

Stability of BUSD

BUSD is a highly regulated and fiat-backed stablecoin. It had been going through price turbulence for 1 year before gaining price stability. It has U.S. dollars as collateral in the reserves that are redeemable at any time. Therefore, it can keep the U.S dollar peg.

Conclusion

BUSD is playing an important role in the product suite of Binance. By making its way to the top 3 stablecoins in the crypto market, it can show the stability in practical. However, centralized stablecoins like BUSD is lack decentralization which is still a slight concern among the community.

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