Binance USD (BUSD) was launched by Binance with Paxos in 2019. It is a 1:1 U.S. dollar-backed stablecoin regulated by the New York State Department of Financial Services (NYDFS). BUSD is now the third-biggest stablecoin in the world, with a market cap now above $12 billion.
Is BUSD the safest stablecoin?
BUSD is one of the few stablecoins in the world that is backed with actual cash, which is not the case of USDT, and not completely the case of USDC. According to a current reserve report from Paxos, 100% of BUSD total market capitalization is backed by cash and cash equivalent reserves:
BUSD is also one of the few stablecoins providing monthly audited reports of their reserves.
According to THE BLOCK:
In August 2020, BUSD became “Greenlisted” by the NYDFS, making it pre-approved for custody and trading by any of the NYDFS’ virtual currency licensees.
Unlike most stablecoins that claim to be compliant, the BUSD business and its issuer Paxos are regulated by NYDFS, This means:
-The value of each stablecoin token is tied directly to the value of the US dollar, and the amount of “reserve” dollars equal or exceed the number of stablecoins outstanding.-Regulators are overseeing the establishment and maintenance of reserves backing the stablecoins.
-Reserves may only be held in the safest forms, such as FDIC-insured bank accounts and in short-term maturity US Treasury instruments.
-Reserves are fully segregated from corporate assets, specifically for the benefit of token holders, and are held bankruptcy remote pursuant to the New York Banking Law.
Regulatory oversight is important because it assures stablecoin users that the dollars underlying their stablecoins are secure and will be immediately available when they want them. The NYDFS ensures the Trust companies, like Paxos, and their individual tokens are following its strict rules at all times.
BUSD use cases
BUSD can be first of all used on Binance centralized exchange in order to stabilize the trader's total asset value when the market becomes too volatile. It is also a good way to trade against Bitcoin (BTC) or altcoins like Ethereum (ETH) or Binance Coin (BNB).
Furthermore, BUSD can be used in DeFi (Decentralized Finance) protocols in order earn yield farming rewards on two blockchains:
- Binance Chain as a BEP-20 token
- Ethereum as an ERC-20 token
Conclusion
BUSD seems to be one of the safest stablecoins, which can easily be used on centralized and decentralized exchanges. However, as the crypto industry generally and this token in particular are still quite young, there are some risks which need to be properly assessed. One option is to diversify the stablecoins to be used in order to mitigate the risks. Another option is to invest into non-stablecoins that are relatively stable (upcoming article).
Disclaimer: this article does not contain any financial advice. The information is provided for general informational and educational purposes only.
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