If you are interested to the previous posts of this series, check it out here:
What is it?
BUSD is a stablecoin created by Paxos and Binance. Paxos uses blockchain technology to offer its Stablecoin as a service product to external companies. Before BUSD, they had already created another gold-pegged 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 stablecoin backed by a reserve of fiat currency and has a value pegged to the US dollar. An amount of US dollars equal to BUSD's total offering is held in custody by Paxos, similar to the reserves of US banks insured by the FDIC. When the price of the US dollar rises or falls, the price of BSUD changes the same way. This is the most common and traditional behavior for a stablecoin. BUSD offers three key features for transactions: accessibility, flexibility and speed. The token is easily accessible through Paxos or Binance. You can buy it on the Binance exchange or through the fiat portal services, or send an amount in US dollars to Paxos to issue new BUSDs. Furthermore, BUSD gives users the flexibility to quickly turn their investments into a stable asset without leaving the blockchain. Finally, using BUSD, a user can quickly send money around the world with minimal fees. The token exists on three different blockchains: Ethereum, Binance Smart Chain and Binance Chain. BUSD holders can exchange tokens between blockchains according to their needs. This can be done on Binance (when making withdrawals) or via the Binance Bridge.
How does it work?
The mechanism for keeping BUSD pegged to the dollar is relatively simple, compared to other types of stablecoins. Each BUSD is exchangeable for 1 USD present in the reserves. By sending your BUSDs to Paxos, they will destroy your tokens and give you their equivalent in fiat currency. This mechanism keeps supply and reserves at a constant 1: 1 ratio. Whenever the BUSD price starts to fall below $ 1 for 1 BUSD, arbitrage traders will buy large amounts of BUSD. Even a price of 0.98 USD could offer them the opportunity to make a profit. After purchasing large amounts of BUSD, arbitragers can convert BUSD tokens into fiat through the Paxos platform. An increase in BUSD demand naturally raises the token price up to USD 1, restoring the 1: 1.
Where to store it?
The best hot wallets for BUSD are TrustWallet and Atomic Wallet. If you want more security, a cold storage like Ledger or Trezor is the right choice.
Pros&Cons
*DISCLAIMER* These lists are subjective, it depends from person to person
Pros
- Solid backers
- One of the most capitalized stablecoins
Cons
- High competition
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