What is Binance USD
Binance USD (BUSD) is the stablecoin of the crypto exchange Binance, denominated in US dollars. In other words, each BUSD token is backed 1:1 with US dollars held in reserve.
As is the case with other stablecoins, BUSD aims to provide a more price-stable alternative to cryptocurrency so investors can avoid market volatility.
BUSD is an ERC20 token built on the Ethereum blockchain. However, it also supports BEP-2. BEP-2 is a technical standard that defines how new digital assets can be created and transferred on the Binance Chain.
Binance Chain is a blockchain platform developed by Binance that is interoperable between the company’s own chain and the most popular smart contract platform. Many wallets and lending platforms also accept BUSD. This provides the necessary infrastructure for Binance USD to be widely used.
BUSD is approved and regulated by the New York State Department of Financial Services (NYDFS). Along with regular audits, this regulation helps to ensure that every BUSD token is backed 1:1 with US dollars.
How does Binance USD work?
To ensure there are enough US dollars to back all BUSD in circulation, Binance and Paxos teamed up with some of the world’s largest banks in 2019. Together, they have created a reserve that is used to back all BUSD tokens in circulation.
Paxos is a regulated financial institution that issues digital assets and is the company behind the popular PAX stablecoin. As the custodian of cryptocurrencies, Paxos is responsible for holding the US dollar reserves that are used to back BUSD tokens. This digital financial infrastructure allows BUSD to be redeemed entirely for US dollars.
Binance, on the other hand, is responsible for managing the BUSD token. This includes listing the token on their exchanges and providing customer support. In other words, Binance is the face of the stablecoin BUSD.
Binance can also mint and burn BUSD when needed with the help of smart contracts. Minting is the process of creating new BUSD tokens. This is done when Paxos deposits US dollars into the reserve. The newly minted BUSD is then sent to the customer’s wallet. Burning is the opposite of issuing. It is the process of destroying tokens and is done when customers exchange their BUSD for US dollars.
Users can seamlessly transfer their digital assets between different blockchains using the Binance Convert feature. This is possible because Binance, as previously mentioned, acts as a bridge between the two chains.
The Binance Convert feature is a key feature that makes Binance USD a universal stablecoin. Since it is compatible with both Ethereum and Binance Chain, the token can be used in a multitude of different applications.
Simply put, Binance USD works because the influence of Binance in partnership with the security of Paxos provides people with a digital dollar they can trust won’t have sudden fluctuations in value.
Today, Binance USD is considered one of the most successful stablecoins. The token is used by millions of people worldwide and has become a staple in the cryptocurrency industry.
