Binance USD

Binance USD (BUSD) is a stablecoin, meaning a digital currency that attempts to offer investors price stability through a mechanism that allows it to remain pegged to the value of a specific asset.  BUSD’s value remains stable through fiat currency reserves. BUSD is a regulated stablecoin, with each BUSD in circulation being backed by one U.S. dollar held in reserve. The token is issued by Paxos, which releases monthly attestation of BUSD’s reserves to show BUSD is 100% backed by reserves. These are either held in cash at insured U.S. banks, via U.S. Treasury bills, and money market funds.

BUSD is a stablecoin created by Paxos and cryptocurrency exchange Binance. The stablecoin is approved and regulated by the New York State Department of Financial Services, which helps ensure customer protections. Paxos, the company behind the Paxos Gold (PAXG) token, issues BUSD on the Ethereum blockchain, while Binance offers a Binance-pegged version of the stablecoin on the BNB Chain. This version is offered by holding BUSD in an Ethereum blockchain address and minting BUSD on the BNB Chain, effectively backing the tokens on the BNB Chain with ERC-20 BUSD. Paxos has the right to freeze accounts and remove funds if needed due to illicit activity.

BUSD maintains its peg by being backed by fiat currency reserves and allowing users to exchange BUSD for an equivalent amount of USD from its reserves. BUSD can be sent to Paxos, which burns the tokens and provides users with the fiat currency in return. If the price of BUSD moves away from $1, arbitrage traders can take advantage of the mechanism to bring it back to its peg. If, for example, BUSD’s price drops to $0.98, traders can purchase large amounts of the stablecoin and convert them into fiat currency via Paxos to pocket the difference. Redeemed BUSD would then be burned, which coupled with rising demand would help the stablecoin return to $1. If BUSD, for example, trades at $1.02, arbitrageurs can purchase tokens for $1 with Paxos and then sell them on the market for a profit, while helping it get back to its peg.