One of Binance’s flagship products is its stablecoin - Binance USD (BUSD), which is issued by Paxos in the Ethereum network. This functions as a fiat-backed stablecoin with a 1:1 ratio to treasury assets. With strong internal controls and regulated operations, Binance claims to offer a stable, secure, and fast medium of exchange with BUSD. Binance also heavily promotes the adoption of BUSD in its recent actions, such as automatically converting USDC and USDT to BUSD upon receipt from external deposits.
Much like the top stablecoins, the value of 1 BUSD is maintained to be 1 US dollar. This is maintained through its treasury, which is almost always equal to its supply, as well as the power of arbitrageurs. Here is a quick rundown of it:
A user swaps a fiat of $1 for 1 BUSD through an Automated Clearing House network, basically a fancy name for debit or credit card payments in the Binance website. This $1 is then stored in the treasury of BUSD. There is a promise that the user may exchange their BUSD back into $1 in fiat at any given time. The BUSD may be used by the user however they wish. They may trade this for another crypto, stake it, or simply hold it as a store of value. Once they trade it, it is possible that the value traded is above or below $1 and that is totally normal since a stablecoin is traded in the same way as any other stablecoin.
Selloffs can dip the price and whale buys can increase it. Making it stable is the job of arbitrageurs as they can exchange the BUSD for a dollar even when they were able to acquire the BUSD for less than a dollar. On the other hand, it would be easily profitable for most people if a BUSD is sold for more than a dollar. This system creates a powerful incentive to make it stable.
To uphold transparency, Paxos through Binance issues a monthly reserve report. According to the latest issue, its 21 billion dollars worth of net assets is made up of three types: Cash Deposits (4.05%), U.S. Treasury Debt (28.54%), and U.S. Treasury Reverse Repurchase Agreements (67.41%). These are all deemed very conservative and liquid, even in the traditional sense. Since BUSDs are a primary prudential regulator, it is legally obliged to only be backed by cash and cash equivalents.
Paxos also issues a regular attestation report. It is assured in the latest report that the value of the treasury exceeds the circulating supply of BUSD, which is the most crucial part. Another assurance that Paxos gives is that customer assets would never be used for Paxos’ debts in compliance with the New York banking even in the case of insolvency. To reduce further risk, Paxos’ BUSD reserves are also segregated in bankruptcy remote accounts.
.png)
