BUSD vs. USDT: What New Crypto Investors Should Know
BUSD and USDT are stablecoins pegged to a fiat currency like the US dollar at a 1:1 ratio. USDT has higher trading volumes but isn’t totally backed by cash reserves and has found itself tangled in reputation issues. In comparison, BUSD has undergone more extensive auditing processes and works on many different blockchains. The two currencies both provide fast transaction times with low fees.
BUSD and USDT are both essential, using smart contracts that operate on blockchains instead of traditional contracts with no legal authority for operation. These coins provide fast transfers around the world anytime, anywhere, plus there’s no need to rely on banks to move funds.
Let’s take a closer look at how these two stablecoins operate.
BUSD or USDT? Which is the Better?
BUSD is a 1:1 secure and compliant USD-backed stablecoin issued by Paxos, approved by the New York State Department of Financial Services (NYDFS), and supported by the Binance cryptocurrency exchange. Every month, Paxos has an auditing firm review its BUSD and US Dollar supply to ensure the stablecoin’s stability and security.
The Paxos platform lets users buy and sell BUSD at a 1:1 USD ratio. The BUSD token does not require operation fees and can be used for payments, loans, and other transactions in any place where ERC-20 tokens are accepted.
BUSD is a non-mineable coin. Tokens are created when a person provides US dollars to Paxos to mint new tokens. There are no limits to how many tokens can be produced, as the number that is available will vary depending on how many people provide funds to prepare these tokens.
Tether or USDT is a stablecoin operated by Bitfinex, a cryptocurrency exchange based out of Hong Kong. The currency works on the Ethereum blockchain. USDT converts the cash someone provides into a digital currency, ensuring the coin is valued at the price of various national currencies, including the US dollar.
All Tether tokens are backed by its reserves, which includes assets from loans made by Tether to other parties. However, USDT always has a 1:1 ratio, meaning a token is always $1. The value of the reserve will always match or exceed the value of tokens in circulation.
USDT tokens can work in many ways. People can offer services in exchange for USDT tokens. They can also exchange USDT for other currencies. USDT tokens do not require outside banks to operate, making them easier to manage and transfer.
What Makes BUSD and USDT Different?
Auditing
BUSD routinely undergoes audits to ensure its security. BUSD completes monthly audits through the Withum auditing firm to ensure the BUSD supply matches the money in banks that link to the tokens. However, USDT does not undergo as rigorous of an auditing practice. While USDT always shows its reserves, it doesn’t provide public information on auditing. This point may be a concern for one’s security needs.
Location of Reserves
Whereas BUSD tokens are backed by US banks, USDT tokens are backed by offshore banks. Offshore banks offer fewer charges for operation and tax benefits, but they aren’t always fully secure like the FDIC-insured US banks that BUSD uses. USDT is also backed by secured loans, corporate bonds, and various other investments. The amount of actual cash reserves used in supporting USDT is minimal compared to what BUSD manages.
Trading Pairs
Since USDT is more available, it supports more trading pairs and is easier to complete trades. However, BUSD will likely become more visible as people see its qualities and the demand for such stablecoins increase.
Blockchain
USDT operates on an Ethereum-based blockchain, as does Paxos-issued BUSD. Binance-Peg BUSD work on multiple blockchains, including ones run by Binance. The additional support Binance provides makes it more secure, as there’s no need to worry about one chain being responsible for all operations.
Trading Volume
USDT has higher trading volume, as it has been around much longer. As of September 2021, the typical trading volume for USDT is about $83 billion, while BUSD is around $12 billion.
What Makes BUSD and USDT Similar?
Value
Both BUSD and USDT are pegged to the US dollar at a 1:1 ratio so there’s no need to worry about volatility.
Acquisition
The minting process for these two currencies is the same. Instead of mining, the group behind one of these tokens add your fiat to their reserves and then mint new coins for you.
Fast Transaction Times
The transaction times for USDT and BUSD are very fast. These two can be transferred 24/7 without any banks necessary.
Lower Transaction Fees
Since these stablecoins are linked to a fiat currency, there’s no need to worry about extreme transaction fees. The cost to transfer USDT and BUSD is minimal, especially when compared with other cryptocurrencies that are often expensive to manage.
Smart Contracts
The two stablecoins operate on smart contracts. These contracts require specific rules and conditions to be met before a transaction can move forward, ensuring a safe and secure process.
No Banks Involved
BUSD and USDT both work without you having to reach a bank for help. You can handle a transaction by working directly with your counterparty.
Side-by-Side Comparison of BUSD and USDT
Both of these stablecoins will not change in value very much, but they do have a few differences that make them noteworthy. Use our side-by-side comparison table to take a closer look before you decide which stablecoin to use.
Feature | BUSD | USDT |
|---|---|---|
Formation | 2019 | 2014 |
General Purpose | Stablecoin | Stablecoin |
Blockchain | Ethereum (BUSD) and BNB Chain, Avalanche & Polygon (Binance-Peg BUSD) | Multiple chains |
Auditing Process | Monthly | Unclear |
Maximum Available Supply | No limit | No limit |