What is BUSD?
Launched on September 5th, 2019, BUSD is a 1:1 USD-backed and highly regulated stablecoin.
Behind BUSD is a partnership of Binance, the largest cryptocurrency exchange, and Paxos, a regulated blockchain infrastructure platform.
Along with BUSD, both companies created other cryptocurrencies before. For Paxos, it was the gold-backed stablecoin called PAX Gold (PAXG), while for Binance, it was BNB. And while BUSD is definitely not the first stablecoin, it ranks as the third-largest by market cap, right behind the well-known USDT and USDC. This is mainly due to the trust and reputation both Binance and Paxos hold as well as the stamp of approval given to BUSD in 2020 by the New York State Department of Financial Services - a department responsible for regulating financial services and products with a reputation of being very rigorous.
Adding to the regulation aspect of BUSD are the monthly attestation reports released by Paxos, providing an insight into the matching supply of BUSD tokens and underlying USD.
Note that there are two versions of the BUSD token - BUSD (the ERC-20 token), and Binance-Peg USD (the BEP-20 version, issued on the BNB Chain). While both are known as BUSD, it's important not to confuse the two, as sending assets via the wrong protocol could lead to the tokens being lost.
Unlike BUSD, Binance-Peg BUSD is not issued in partnership with Paxos or regulated by the New York State Department of Financial Services.
How does BUSD work?
The mechanism for keeping BUSD’s peg is relatively simple compared to other types of stablecoin. Each BUSD is exchangeable for 1 USD from the reserves. By sending your BUSD to Paxos, they will burn your tokens and provide you with the fiat currency. This mechanism keeps the supply and reserves at a constant 1:1 ratio.
The uses of BUSD
The BUSD token is part of many partnerships, including the one with BitPay, which enabled Microsoft, Amazon, Takeaway.com and other BitPay merchants to start accepting BUSD.
Popular crypto wallets like MetaMask, Trust Wallet, Trezor, Zapper and more also support BUSD just like various DEXes, CEXes, payments gateways, payment APIs, and multi-currency payment services do.
The safety of BUSD
Due to the recent events related to stablecoins, we should once again highlight that even assets labelled as "stable" do come with their fair share of risk. We addressed that in our risk assessment of UST and other stablecoins as well as our USDT deep dive.
Luckily, in the case of BUSD, the risks are low as it is one of the only stablecoins that are regularly audited by third parties and subject to strict regulations.
