Whether you’re a beginner or a veteran in the world of cryptocurrency, you’ve probably heard people talk about stable coins. These tokens are vital because of their security in a relatively volatile financial market.
There are many different options when it comes to stable coins, with the popular three being Tether (USDT), Binance USD (BUSD), and USD Coin (USDC). This guide is designed to give you a basic overview of everything you need to know about Binance BUSD.
If you’d like to learn more about other stable coin options, you can go through our other detailed guides to get a better understanding.
Table of Contents
What is BUSD?
Stablecoins have a stable value because they are directly linked to another asset. Binance BUSD is fiat collateralized. This means that one BUSD is equal to one USD. Since the distributing company keeps an equal amount of cash in reserve, you don’t have to worry about your Binance coins’ value depreciating.
Additionally, you can use your BUSD to trade in the cryptocurrency market by exchanging it for other types of tokens like Bitcoin or Ethereum that are high-risk, high-return investments.
What is Binance?
To understand more about how BUSD operates, you have to look closely at the companies behind the coin.
In this case, that is the cryptocurrency exchange Binance and blockchain infrastructure platform Paxos. Together they launched the stable coin BUSD, which is different from other assets like Tether as it meets the high standards of the NYDFS.
If you’ve read our guide on Tether USDT, you’ll know that there is a huge hue and cry about whether or not the company has enough cash reserves to support its claims. Binance and Paxos release monthly audited reports proving their cash reserves and are therefore approved by the New York State Department of Financial Services.
This means that there is verifiable proof that BUSD is 100 percent legitimate and backed by fiat reserves kept in insured US banks or US Treasury bills. So if you’re worried about the lack of formal legitimacy of other cryptocurrencies, Binance USD is definitely the one for you.
The History of Binance
While older stable coins like Tether have been around since the early 90s, establishing the claim in the crypto market, Binance USD is relatively newer. The coin was launched on the Paxos platform in September 2019.
Since its launch, BUSD has grown in value exponentially. At present, it has a 10 billion dollar market ceiling. Investors can purchase it using USD or redeem it for fiat currency. Additionally, it is also possible to trade BUSD for BTC, BNB, and XRP.
Why is BUSD so Popular?
Now you might be wondering, why is BUSD so popular? There are several factors to consider.
1. Investment Value
As tokens like Bitcoin and Altcoin multiple in value, more and more people are investing in cryptocurrencies hoping to make similar gains.
The reliability of stable coins like BUSD has made them the ideal first pick for beginners finding their feet in the market. And with the increasing popularity of NFTs and Defi, BUSD’s investment value as a liquid crypto asset is undeniable.
You can take your time to hedge your bets while still keeping your money safe from inflation risks.
2. Stability
Put simply, Binance USD is the middle ground between traditional fiat systems and modern Defi tokens.
You may have heard of these under the names Uniswap, Avalanche, Chainlink, PancakeSwap, and Dai. Keep in mind that these are high-risk investments and incredibly volatile, so having a solid BUSD base will help you protect your base assets while allowing room for controlled trading on the Ethereum blockchain.
Binance USD is especially attractive for beginner traders who aren’t ready to dive into the deep end with volatile tokens like Bitcoin. As you immerse yourself in the world of cryptocurrency and explore options like yield farming and liquidity pools, you’ll need a stable source to start from.
With BUSD, you don’t have to deal with the depreciation of fiat currencies or the flux of crypto-heavy products.
3. Reliability
Binance USD is far from the only stable coin on the market. But what sets it apart from its competitors and makes it so popular among investors is its reliability. Since Paxos routinely releases audited reports for its fiat reserves, they have the added benefit of transparency.
With the New York State Department of Financial Services investigating other stable coin companies for financial fraud, it can’t hurt to stick to a stable coin that isn’t involved in legal controversy.
4. Multi-Assets Mode
An added attraction with Binance is what the agency terms their Multi-Assets Mode. This allows investors to trade their stable coins easily and quickly. There are also other advantages like lower fees for BUSD to ETH or BUSD to BTC contracts.
Overall, traders can use a single account for all their trading, protect against the risks of liquidation and capitulation. So even if the market takes a downward turn, you still have some level of security.
The flexibility and accessibility let you adapt to changing market conditions and engage in a highly efficient format of trading that blends BUSD-Margined and USDT-Margined contracts.
What are USD-M Futures Contracts?
With its Multi-Assets Mode, Binance USD is allowing traders greater ease while trading USD-M futures contracts. But what are these, and why is this enticing for investors?
The legal term “futures contract” means just an agreement that you will buy or sell your asset at the pre-decided price at the pre-determined time.
When trading on the futures exchange, the buyer is agreeing to buy when the contract expires, and the seller is agreeing to provide the asset when the contract expires. Traditionally, futures contracts are how you’d invest in oil or any other similar commodity.
The objective is to speculate or predict how a commodity’s value will increase or decrease in the short or long term. Futures allow sellers to hedge the price movement and avoid huge losses if the market reacts unfavorably in the future. In doing so, the trader must consider the existing spot price, maturity period, risk-free rate of return, dividends, yields, and any other relevant factors.
On Binance, you can trade multiple futures contracts in high-return investments like BTC, ETH, or XRP with stable coins like USDT or BUSD set as collateral. Hence you can trade with actually buying the crypto products. If you want to trade USD-M contracts, you typically need to dedicate a solid portion of your crypto portfolio to stable coins like USDT or USD that serve as collateral.
Many traders find this a hassle because they end up having to keep two separate types of stable coins in their wallets. That is why the Multi-Assets Mode is so popular. It supports BTC, ETH, BNB, and USDT as USD-M collateral. You can share your margin across both stable coin contracts.
The benefit of this is that a portfolio position with high returns will offset potential losses in the same portfolio. That means a lower margin balance since it reflects your net positives and losses across both markets.
Is Binance USD A Good Long-Term Investment?
As a long-term investment option, Binance USD has a lot to offer.
From its portfolio value to its reliability as a stable coin, if you want to trade in the cryptocurrency market, you will need to start with BUSD. A mistake people often make is thinking they need to choose a stable coin they like the most and stick with it.
But that is far from the case. When it comes to Tether (USDT), Binance USD (BUSD), and USD Coin (USDC), each holds independent value. You will need these assets to maintain liquidity and establish collateral. And as an NYDFS authenticated stable coin, Binance USD has an incredible market value.
BUSD is one of the biggest crypto assets in the world. Popular as a tool for derivatives trading and stabilizing personal savings, many people from countries with rapidly depreciating currencies choose to convert their personal funds to BUSD to safeguard their earnings.
The fact that it is regulated by the New York State of Financial Services offers all investors the guarantee that they can exchange it for USD at any time. Since the coin is fiat-backed and collateralized, there is a guarantee of stability.
At present, the US dollar is the world’s favored reserve currency, so investors around the world feel safe investing in BUSD.
Does Binance Pose Financial Crime Risk?
The biggest source of government outrage against cryptocurrency and its various forms is the idea that criminals will use it to hide cash and get away with illicit activity.
However, Paxos has the authority to both create and burn toxins if they believe this is the case. They can also freeze accounts and deplete funds for criminals attempting to use their services to bypass the system. As such, the company has several checks and balances to prevent harm.
That said, the FCA or Financial Conduct Authority, a UK watchdog, claims Binance is not being effectively supervised. They base their accusations over an incident with BML or Binance Markets Limited, a UK affiliate for the company that failed to provide enough information regarding their inner workings to meet FCA satisfaction.
Of course, as the fiat alternative system rapidly gains global popularity, governments worldwide place accusations against the various crypto companies and exchanges.
Where Can You Buy Binance USD?
Buying Binance USD is extremely straightforward. You can purchase it from the Paxos platform. All verified customers can buy BUSD from the Paxos platform. Simply deposit your dollar amount or PAX directly from your bank account.
The fiat equivalency is 1:1, so one USD is equal to one BUSD. The ratio also holds for PAX conversion, so you can redeem your currency any way you choose to. As for trading, Binance.com offers multiple contacts for BTC, BNB, and XRP. Like PAX, you will not have to pay any additional fees while buying or redeeming your BUSD.
At present, BUSD is being held by over 1.1 million investors with 10 to 15 thousand active traders. Despite being launched in 2019, it is the third most popular stable coin and tenth most used cryptocurrency with a market cap of 10 billion USD. Keep in mind that its circulation was at 30 million USD in early 2020 and 1 billion USD at the start of 2021.
As more and more businesses begin to implement crypto payment options, the coin will only increase in circulation.
Where Can You Use BUSD?
Since its launch, BUSD has become incredibly mainstream as a popular stable coin. Many private businesses accept online and offline payments using BUSD, such as hotels where guests can use a QR code and pay for room and board using BUSD.
Other partnerships with companies like BitPay, Simplex, Moonpay, and Alchemy offer payment solutions for customers who want to make purchases using BUSD.
Recently, Binance has launched an initiative under Binance NFT where investors can use their BUSD coins to purchase NFT products. Overall, there are 36 cryptocurrency exchanges and over 20 types of wallets that support BUSD.
As their following and reach grow, so will their value as a currency. So if you’re worried about where you can use BUSD, don’t be! Binance isn’t some obscure token; it’s a cryptocurrency leader.
Conclusion
With all that in mind, you are now in a better position to make an informed financial decision. Cryptocurrency is no longer some obscure concept only spoken of on discreet forums.
In 2021, the crypto market has become incredibly mainstream. There is no better time for you to join the masses flocking to coins like BUSD as a stable way to protect their money.
And if you want to go a step further and start trading, then Binance USD will set you up in a position of strength. With this stable coin in your wallet, you can make efficient, speedy trades without hassle or additional fees.
With a 10 billion USD market cap, Binance USD is the 10th most popular cryptocurrency, and that’s only going to grow!
Resources
https://paxos.com/busd/
https://www.binance.com/en/blog/futures/busd-all-you-need-to-know-about-the-stablecoin-421499824684903051
https://www.binance.com/en/buy-DeFi-tokens
https://www.napier.ai/post/fca-binance-aml-failings
https://www.binance.com/en/blog/markets/busd-reaches-$10b-market-cap-milestone-and-enters-top-10-crypto-rankings-421499824684902358