Binance USD (BUSD) is a fiat-backed ERC-20 stablecoin pegged to the US dollar. BUSD was founded by Paxos and Binance.^[1]

Overview

BUSD is a stablecoin that is pegged to the value of the US dollar. It is backed by a reserve of US dollars held in Federal Deposit Insurance Corporation (FDIC)-insured banks or backed by US Treasuries. The value of BUSD corresponds to the value of the US dollar, meaning that if the value of the US dollar rises or falls, the value of BUSD will also rise or fall by the same amount.^[1]

BUSD is issued on the Ethereum blockchain by Paxos and separately, Binance wraps BUSD and issues separate tokens (known as Binance-Peg BUSD) on several blockchains, including BNB Chain, Polygon, and Avalanche.^[1][3]

Regulations

New York state regulators implemented certain requirements for the operation of BUSD and the companies issuing it, Paxos and Binance. These requirements include full collateralization of the stablecoin, control over the creation and burning of BUSD tokens, and the right to freeze accounts and remove funds in cases of illegal activity. These principles all adhere to the Trust Charter and New York banking laws applicable to the stablecoin.^[1]

History

In August 2018, Binance and three other cryptocurrency exchanges raised $32 million for stablecoin projects. Following this, Binance announced the launching of its USD-pegged stablecoin in 2019 in partnership with Paxos. The New York State Department of Financial Services (NYDFS) approved the stablecoin upon launch, and several trading pairs were introduced for BUSD against BTC, BNB, and XRP.  BUSD was available for 1:1 purchase on the Paxos platform and subjected to regular audits to make sure that reserves and issuances were indeed 1:1.^[2]

In August 2020, BUSD became "greenlisted" by the NYDFS, making it pre-approved for custody and trading by any of the NYDFS’ virtual currency licensees.^[4]

Tokenomics

There is no restriction on the number of BUSD that Paxos can mint, hence, the token does not exist with a static supply. The token has a unique token economics structure that allows it to maintain a token supply that is constantly equivalent to the US dollar. Hence, the total supply of BUSD in circulation equals the dollar equivalent.^[1]

Minting and Burning

To maintain the BUSD: $ 1:1 reserve, Binance uses a unique minting and burning mechanism. New BUSD tokens are minted and sent to the users' wallets when they deposit fiat dollars into the Paxos reserve. For instance, when users intend to buy 1000 BUSD with $1000, 1000 BUSD is minted and sent to the users' wallet.^[5]

The BUSD is a deflationary token; hence, when users redeem their tokens in dollars, the BUSD is burnt or destroyed to maintain a token supply that is constantly equivalent to dollar value.^[5]

Utility

BUSD can be used for several purposes. First, it provides users with a staking and earning system in the Binance ecosystem. Binance USD has also been used to pay for goods and services on many platforms, including Alternative Airlines, Ledger Shop, and Proleo.io. In addition, the fiat-pegged cryptocurrency can also be used as collateral for loans. BUSD also works with BitPay, a bitcoin payment provider. It enables BitPay’s merchants to start accepting BUSD coins, a list that includes Microsoft, Amazon, and the Switzerland branch of Takeaway.com.^[5]

Binance also offers zero maker fees to users trading through the BUSD sport or margin trading pairs. Furthermore, Binance also offers zero transaction fees on all BUSD stablecoin pairs.^[2]

BUSD also provides users with trading options. Users can use it to swap or buy other cryptocurrencies. It can also be used to buy NFTs on the Binance NFT Marketplace.^[1]