What is Binance USD (BUSD): A stablecoin worth investing in?

BUSD's market capitalisation has been climbing up the rankings since August 2020

The BUSD logo in front of a black background                                 
Binance USD’s market cap grew from $1bn to $14.64bn in 2021 - Photo: Shutterstock
                                

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The cryptocurrency industry’s volatile nature has warned off many investors, until stablecoins came along. Stablecoins have combined the steadiness of traditional finance and the decentralisation of cryptocurrencies.

Binance USD (BUSD) was not the first stablecoin but it is certainly building itself up to be one of the most used. The support of the world’s largest crypto exchange and the approval of a stringent regulatory body has proved to be a compelling appeal for investors.

As BUSD is a stablecoin, investors will not be able to profit it off its volatility, but the coin could still be a worthy addition to a portfolio. Investors have started to take note as the stablecoin has climbed its way into the top 20 cryptocurrencies by market capitalisation.

What is Binance USD (BUSD)?

BUSD is not Binance’s first cryptocurrency. The exchange launched its own coin in 2017, but this time wanted to create a more stable cryptocurrency. Binance formed a partnership with Paxos in September 2019 to create its own stablecoin, called Binance USD (BUSD). The defining characteristic of this coin is that one BUSD is equal to one US dollar.

BUSD is bridging the gap between traditional finance and cryptocurrencies. Users can start investing in cryptocurrencies and blockchain technology without concerns about volatility. It is also providing a convenient way for users to switch between assets without moving off the blockchain.

Binance’s aim was to create a cryptocurrency that was trusted worldwide by its users and regulators. In January 2020, BUSD received approval from the New York State Department of Financial Services, a New York regulation department known to be rigorous. The state had previously proved to be harsh on cryptocurrencies, with crypto organisations required to have a “BitLicense” to operate in the area.

With the trust from regulatory bodies and the world’s largest crypto exchange behind it, the Binance USD cryptocurrency started to make a name for itself. Since August 2020, it has steadily climbed up the cryptocurrency rankings, so that at the beginning of 2022 it was the 15th largest cryptocurrency by market capitalisation. at almost $15bn.

Binance USD market capitalisation growth
Binance USD’s market capitalisation in US dollars

How does Binance USD work?

Binance USD has a unique tokenomics (aka token economic) system that has allowed it to keep the price equal to one US dollar and its partnership with Paxos is key to this. The blockchain infrastructure platform holds the same number of US dollars as the total supply of BUSD. At the time of writing, the total supply of BUSD is 14.38bn, meaning Paxos holds $14.38bn.

To maintain this ratio, the Binance USD cryptocurrency uses a deflationary mechanism. For example, when 50 BUSD is bought, a $50 payment is added to the Paxos treasury. When someone decides to sell 50 BUSD, $50 is taken from the treasury and the equivalent BUSD is burned.

It is because of this system that BUSD coin does not have a regular minting schedule. It also means Binance USD’s market capitalisation can clearly indicate demand for the token. Meanwhile, its price changes slightly to keep in line with US dollar. There are plenty of US dollar-pegged stable coins, but Binance USD has seem to become one of the most popular.

What is Binance USD coin used for?

Binance said the early adopters of BUSD trust it for their decentralised finance activities, using it as a bridge between traditional and decentralised finance. People mainly use stablecoins as a safe haven from a volatile cryptocurrency.

Take bitcoin for example. If a trader expects the price to drop, they can switch it to BUSD to protect their holdings. By keeping the investment in cryptocurrency, rather than exchanging it for a fiat currency, it increases the liquidity in the crypto economy.

BUSD is an ERC-20 token and has BEP-2 support, meaning it can operate on platforms that use Ethereum and Binance Smart Chain. As well as adding security, this improves Binance USD’s interoperability as it can be used on any wallet, exchange or smart contract that uses these blockchains.

Binance USD has started expanding into real-world uses. Since its launch, the stablecoin has announced numerous partnerships. One of the most notable is with BitPay, a bitcoin payment provider. This has enabled BitPay’s merchants to start accepting BUSD coin, a list that includes Microsoft, Amazon and the Switzerland branch of Takeaway.com.

Changpeng Zhao, the Chinese-born Canadian founder and chief executive of Binance, said: “We believe a growing number of merchants and businesses will start adopting crypto, and we are glad to provide the payment solution together with BitPay, making the process simpler and easier.”

Binance Review

Binance’s website has a list of the many reasons to use its stablecoin. BUSD is trusted by notoriously stringent regulatory bodies and its tokenomics means it is backed by one of the strongest fiat currencies.

Yet, one of the most persuasive arguments is its exponential adoption. The cryptocurrency has soared in popularity after its launch in 2019. Binance put this down to 2021’s exceptional increase in cryptocurrency adoption. With the price explosions of bitcoin and other altcoins, BUSD’s utility and reliability became even more needed. The stablecoin also profited from the increase popularity of decentralised finance and NFTs.

CoinBureau recognised this too, highlighting its interoperability and trustworthy nature. It said: “The exponential growth of BUSD in the first six months since its launch shows that the market was ready for an alternative to the existing stablecoins.”

Although Binance USD has a lot going for it, the cryptocurrency still faces tough competition. With Tether currently the third highest cryptocurrency and USD Coin fifth, BUSD has some catching up to do.

FAQs

At the time of writing, there is a circulating supply of 14.38bn Binance USD coins. To remain equivalent to the US dollar price, every time a BUSD is purchased, Paxos adds a dollar to its treasury and mints a coin.

BUSD was created by Binance, the largest crypto exchange. It is the second cryptocurrency launched by the exchange. This time, Binance wanted to create a coin that offered the stability provided by traditional finance.

Binance USD is an ERC-20 token and a BEP-2 token. This means it secured by Ethereum and Bianance Smart Chain.

Further reading:

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