BUSD Gives Traders The Ability To Trade With Much Greater Ease

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.

With an exceptionally large increase in crypto adoption in 2021 due to Bitcoin and altcoin price explosions, BUSD was adopted at unprecedented rates due to its reliability. As crypto innovations like DeFi and NFTs start to gain popularity, so has BUSD.

With over one million people already holding BUSD, it is clear that these early adopters trust the stablecoin and prefer using it for their DeFi activities. Specifically, BUSD acts as a bridge between traditional finance and DeFi, presenting a newfound level of monetary freedom that isn’t offered by traditional currencies or institutions. In addition, stablecoins help protect their users from threats like inflation and offer attractive APYs for DeFi services. BUSD users can take on yield farming and liquidity pools with more financial protection from uncertainties than in fiat-related or crypto-heavy products.

Technology Behind BUSD

Binance wanted to build the first stablecoin truly collateralized by the US dollar, with access to U.S. dollars that Paxos holds and US banks create and manage. With the BUSD, they made this possible.

The first feature of Binance USD is a deflationary mechanism that maintains each BUSD token at a 1:1 ratio with the U.S dollar. For example, whenever 100 BUSD is bought, 100 BUSD is created for the purchase, and a $100 payment is added to Paxos reserve accounts. Whenever someone sells (redeems) a 100 BUSD on the market, the $100 payment is taken from Paxos reserve accounts. The received 100 BUSD are then burned out of the system.

The BUSD token also works with several ERC-20 smart contracts. These smart contracts provide trustless security for the BUSD. In addition, BUSD uses this feature to ease interoperability among any wallet or exchange that supports Ethereum.

Users should be aware that BUSD fully complies with the NYDFS regulatory framework. Using a revolutionary new function called “SetLawEnforcementRole” allows Paxos to restrict and control funds that move through accounts that run afoul of the NYDFS regulatory framework. While this may seem against the decentralization principles of crypto, the feature will only affect criminal or fraudulent accounts while protecting user accounts from hacks.

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.”

Why Use BUSD Outside of the Binance Ecosystem?

BUSD is an incredibly useful monetary asset that can be used anywhere outside of Binance due to its exponential adoption. Its global adoption has created one of the largest networks in the cryptocurrency industry. Not only is it often used as an investment tool for derivatives trading, it’s also a popular choice for people looking to stabilize their personal funds. As many countries around the world have unreliable currencies, BUSD and other stablecoins have become a safe haven for people looking to climb out of poverty.

BUSD is also trusted as a stable, reliable crypto-financial product due to its adherence to rigorous regulatory standards. Officials of the New York State of Financial Services (NYDFS) take on the responsibility of enforcing specific rules and measures on Paxos and Binance with regards to how the stablecoin operates, how it is backed, and how it is ultimately collateralized. Paxos also has the ability to create and burn BUSD tokens at will, as well as freeze and remove funds from people who exhibit nefarious or illicit activity.

Finally, as alluded to earlier, the primary reason why people around the world use BUSD is because it is backed by an equal amount of USD. As the US dollar is still the world’s reserve currency and strongest fiat currency, it shares the same sentiment of being a stable and reliable option to store one’s value.

Paxos ensures the value of BUSD by performing regular audits to ensure the US dollar reserves held is equal to the supply of BUSD at a 1:1 ratio. These audits are carried out alongside Withum, an accounting firm.

Many other stablecoins do not offer these assurances to their users. Therefore, the strict regulatory standards that BUSD adhere to set a new industry standard, making BUSD one of the best choices when it comes to stablecoins.

Tech Behind Binance USD

The Binance USD was created to be fully collateralized with U.S. dollars held in U.S. bank accounts on a 1:1 basis. These accounts are created and administered by Paxos, and are audited on a monthly basis as prescribed by New York state regulations.

Any requests to buy or sell BUSD are accompanied by a movement of cash into or out of the reserve account. Based on these requests BUSD tokens are either minted or burned accordingly.

As an example, a purchase of $1,000 worth of BUSD will result in 1,000 BUSD tokens being minted and an increase of $1,000 in the reserve accounts. On the other side of this a redemption of 1,000 BUSD will cause the burning of those tokens and a decrease of $1,000 in the reserve as the U.S. dollars are removed and transferred to the person who redeemed the tokens. In the event there is some critical security threat, such as a hack, Paxos has the ability to pause the transfer, creation, or destruction of BUSD tokens.

While Paxos controls the creation and destruction of BUSD tokens, there are also ERC-20 smart contracts in existence that work with BUSD tokens. These smart contracts help provide security for the process as it removes the need for third parties and moves the transactions to the trusted capabilities of the blockchain network.

Binance USD Process
Process of Issuing & Redeeming BUSD

And since BUSD is an ERC-20 asset it is simple to trade tokens because transferring and viewing transactions is supported by most wallets and exchanges that support Ethereum.

The NYDFS monitors and regulates BUSD in compliance with the Trust Charter. This ensures that Paxos is following all applicable New York banking laws in its operating procedures regarding BUSD. The regulations in place require Paxos to have a means to freeze accounts, and to wipe account balances of frozen accounts when required.

This regulation is adhered to through a function called “setLawEnforcementRole.” This function can be used if neeed to place administrative restrictions on the circulating supply of BUSD.

Because this goes against the decentralization of assets, Paxos has been very clear in asserting that the function is only in place to meet regulation requirements, and to prevent such illegal activities as terrorist financing and money laundering. In that respect Paxos has said the function will never be used unless required by law enforcement agencies.

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