BUSD-Margined Futures.

Stablecoins.

A stablecoin is a digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold. Stablecoins are designed to reduce volatility relative to unpegged cryptocurrencies like Bitcoin.

Stablecoins bridge the worlds of cryptocurrency and everyday fiat currency because their prices are pegged to a reserve asset like the U.S. dollar or gold. This dramatically reduces volatility compared to something like Bitcoin and results in a form of digital money that is better suited to everything from day-to-day commerce to making transfers between exchanges.

The combination of traditional-asset stability with digital-asset flexibility has proven to be a wildly popular idea. Billions of dollars in value have flowed into stablecoins like USD Coin (USDC) as they’ve become some of the most popular ways to store and trade value in the crypto ecosystem.

What can you do with stablecoins?

  • Minimize volatility. The value of cryptocurrencies like Bitcoin and Ether fluctuates a lot — sometimes by the minute. An asset that’s pegged to a more stable currency can give buyers and sellers certainty that the value of their tokens won’t rise or crash unpredictably in the near future.
  • Trade or save assets. You don’t need a bank account to hold stablecoins, and they’re easy to transfer. Stablecoins’ value can be sent easily around the globe, including to places where the U.S. dollar may be hard to obtain or where the local currency is unstable.
  • Earn interest There are easy ways to earn interest (typically higher than what a bank would offer) on a stablecoin investment.
  • Transfer money cheaply. People have sent as much as a million dollars worth of USDC with transfer fees of less than a dollar.
  • Send internationally. Fast processing and low transaction fees make stablecoins like USDC a good choice for sending money anywhere in the world.

What is BUSD?

BUSD is a stablecoin founded by Paxos and Binance. Paxos uses blockchain technology to offer their Stablecoin as a Service product to external companies. In the past, they also created a gold-backed stablecoin called PAX Gold (PAXG). The New York State Department of Financial Services regulates both BUSD and PAXG tokens.

On a technical level, BUSD is a fiat-backed stablecoin that maintains a U.S. dollar peg. An amount of U.S. dollars equal to the total supply of BUSD is held in custody by Paxos, acting as its reserves in FDIC-insured U.S. banks. When the price of the U.S. dollar rises or falls, the price of BUSD also does in equal amounts. This is the most common and traditional model of stablecoin.

BUSD offers three key attributes to transactions: accessibility, flexibility, and speed. The token is easily accessible through Paxos or Binance. You can purchase them through Binance’s exchange or fiat gateway services, or send an amount in U.S. dollars to Paxos to mint new BUSD tokens for you.

BUSD also offers flexibility in allowing crypto users to quickly turn their holdings into a stable asset without moving off the blockchain. Finally, by using BUSD, a user can quickly send money around the globe with nominal fees.

The token exists on three different blockchains: Ethereum, Binance Smart Chain, and Binance Chain. Holders can swap their tokens between the blockchains depending on their needs. This can be done on the Binance exchange (when making withdrawals) or through Binance Bridge.

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.

Whenever the price of BUSD begins to move lower than $1 per 1 BUSD, arbitrager traders will purchase BUSD in large quantities. Even a price of $0.98 could provide them an opportunity to make a profit. After purchasing large amounts of BUSD, the arbitragers can then convert the BUSD tokens into fiat through the Paxos platform. An increase in demand for BUSD naturally raises the token price back up to $1, restoring the 1:1 peg.

Why do people use BUSD?

Based on the attributes we talked about earlier, BUSD has multiple use cases for crypto investors and traders.

Avoid price fluctuations in crypto markets.

The crypto ecosystem can be very volatile. Like in traditional financial markets, there is also demand for stable assets in crypto, especially when the market becomes too volatile. By converting assets into fiat or securities, traditional investors can ride out a volatile period. BUSD offers the same opportunity to crypto investors and traders.

Lock in gains without needing to convert to fiat.

When someone wants to exit an investment and secure their profits, BUSD provides a highly liquid way of doing so. There’s no need to wait to transfer fiat funds into your bank account from an exchange. If you decide to enter into a new position or purchase another asset, you also don’t need to wait to top up your account with new fiat funds.

How is BUSD different from other stablecoins?

BUSD differs from other stablecoins in the market for a few significant reasons. First of all, BUSD is part of a category of fiat-backed stablecoins. There are also crypto-backed stablecoins that use crypto assets for their reserves, like DAI, for example.

There are also algorithmic stablecoins without any collateralization at all. These projects attempt to control the stablecoin’s supply with algorithms to create and burn tokens.

But how does BUSD differ from other fiat-backed stablecoins? One key point is that Paxos releases regular audits, showing the U.S. dollar reserves matching the supply of BUSD 1:1.

The accounting firm Withum completes these audits as part of BUSD’s requirements as a regulated cryptocurrency. Not every project does this, and some fiat-backed stablecoins might not have all the reserves they claim.

For example, a case brought by the New York Attorney General indicated that the reserves for the stablecoin Tether (USDT) were not 100% fiat-backed. This discovery was in direct contradiction to previous statements made by Tether.

Advantages of Holding BUSD

BUSD offers unique advantages compared to other stablecoins in the market:

1. Strict Compliance and 100% Backed by Cash & Cash Equivalents

BUSD is a regulated, fiat-backed stablecoin pegged to the U.S. dollar. For every unit of BUSD, there is one U.S. dollar held in reserve. In other words, the supply of BUSD is pegged to the U.S. dollar at a 1:1 ratio.

The stablecoin is issued by Paxos and regulated by the New York State Department of Financial Services (NYDFS).

The value of each stablecoin token is tied directly to the value of the US dollar, and the amount of “reserve” dollars equal or exceed the number of stablecoins outstanding. These reserves are only held in the safest forms, such as FDIC-insured bank accounts and in short-term maturity US Treasury instruments.

Regulation and oversight by the New York State Department of Financial Services (NYDFS) is crucial as it ensures that the stablecoin’s value is maintained with their corresponding fiat currency. This means BUSD reserve assets will be audited to match the supply of BUSD tokens and underlying U.S. dollars every month.

Also, it assures stablecoin users that the dollars underlying their stablecoins are secure and will be immediately available when they want them. In the case of BUSD, the New York State Department of Financial Services is responsible for regulating the coin so that individual tokens are always following its determined rules.

2. Purchase and redeem with Zero Fees

Transacting with BUSD on Binance Futures has also proven to be a cost-effective choice. Binance has launched the Zero Maker Fee promotion incentive for all BUSD pairs and the Zero transaction fee promotion for 4 BUSD stablecoin pairs. Users can purchase and trade BUSD with a low fee and enjoy the great liquidly in the Spot and Margin market.

For example, if you make a maker-trade on BTC/BUSD in the spot market, you will not incur fees. Additionally, if you trade a BUSD stablecoin pair such as BUSD/USDT, you can transact with no cost at all.

These initiatives can help lower your total trading expenses can thus help you enjoy more profits. Furthermore, the strict compliance standards and fully cash-backed reserves make BUSD one of the most secure and safest stablecoins to hold.

Trading BUSD-M Futures with Multi-Assets Mode

Under Multi-Asset Mode, trading BUSD-M contracts can offer more cost-saving benefits.

If you are a BUSD holder, not only can you save on trading fees in the Spot and Margin markets, but you can also save on fees trading the BUSD-M contracts. Furthermore, with Multi-Asset Mode, you can trade USDT-M contracts without converting them to USDT, giving you the flexibility to open positions in both USDT-M and BUSD-M contracts whenever opportunities arise.

If you are a USDT holder, you can save on fees by trading BUSD-M contracts as they offer lower fees and maker rebates, as mentioned earlier. This way, you could reduce your transaction costs and enjoy more profits.

Also, in Multi-Assets Mode, traders can trade in two different directions on the same underlying crypto because they can trade in BUSD or USDT.

For instance, if a trader believed that BTC/BUSD would take a loss due to an upcoming price drop in BTC, they could short a BTC/USDT contract to counteract the potential loss.

So let’s say you held a long-term position valued at 50,000 BUSD in BTC/BUSD perpetual contracts. After some technical analysis, you determine that there is an upcoming downtrend in the near term. By using Multi-Assets mode, hedging for this scenario is simple. The way to bet against BTC and short it would be with a USDT quarterly contract. Your position could simply be to trade half the size of your BUSD position into USDT. In other words, 25,000 USDT worth of BTC/USDT quarterly futures contracts.

Should the price of BTC fall 20%, the losses incurred in BTC/BUSD perpetual would still amount to -10,000 BUSD. Your hedge, however, trading at half the value of your long-term position, would serve to cushion the loss by 5,000 USDT. Thus, although there is still a loss, the risk was mitigated, and in the end, cut down by 50% because BUSD and USDT are linear products, both pegged equally to the US dollar.

You can get more info here.

Where can I get BUSD?

There are few different ways to buy BUSD. You can find a few different purchase options on the BUSD landing page. One option is to buy BUSD on the secondary market. Binance has many tradeable BUSD pairs as well as simple fiat gateways. You could trade another cryptocurrency or fiat coin on the exchange or use a debit or credit card to purchase BUSD.

And if you don’t have a Binance account, get started with the previous link, deposit and get your BUSD.

--

--

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store