Since its first-day launch in September 2019, the stablecoin BUSD has been believed to be safer than any other cryptocurrencies. However, in order to determine whether “is BUSD safe or not”, an understanding of how it’s backed and its issuer is significantly important. 

To determine the safety of BUSD, it should first and foremost be made known what exactly is BUSD, and then it can be clarified by the information of its back and its issuer.

What is BUSD?

BUSD is a stablecoin founded by Paxos and Binance. Paxos uses blockchain technology to offer its Stablecoin as a Service product to external companies. On a technical level, BUSD is a fiat-backed stablecoin that maintains a U.S. dollar peg.

Backing of BUSD

In terms of backing, the backing of any stablecoin determines how much it is worth and, thus, how likely it is to lose value. Stablecoins are tied to the value of an outside asset, making them well-stable, in contrast to the majority of cryptocurrencies, which are well-known for being volatile. 

As for the backing of BUSD, the stablecoin is 100% backed by reserves held in either or both fiat cash in dedicated omnibus accounts at FDIC-insured U.S. banks and/or U.S. Treasury bills (including through repurchase agreements and/or money-market funds invested in U.S. Treasury bills). 

The Federal Deposit Insurance Corporation (FDIC) Issuer of BUSD

When it comes to the issuer of Binance USD, the stablecoin is issued by Paxos, a New York-regulated financial institution. Led by CEO and Co-Founder Charles Cascarilla, the Paxos team consists of individuals from various backgrounds and experiences ranging from Wall Street to Silicon Valley. Added to this is the fact that Paxos holds an equal amount of US dollars to the total supply of BUSD. Therefore, the price of the stablecoin fluctuates directly with the price of USD. 

Paxos Trust Company

Paxos also has the ability to create and burn BUSD tokens at will, as well as freeze and remove funds from people who exhibit nefarious or illicit activity. Paxos ensures the value of Binance USD by performing regular audits to ensure the US dollar reserves held are equal to the supply of Binance USD at a 1:1 ratio. These audits are carried out alongside Withum, an accounting firm.

Regulatory standards

BUSD is also trusted as a stable, reliable crypto-financial product due to its adherence to rigorous regulatory standards. Officials of the New York State of Financial Services (NYDFS) take on the responsibility of enforcing specific rules and measures on Paxos and Binance with regard to how the stablecoin operates, how it is backed, and how it is ultimately collateralized.

New York State Department of Financial Services

The NYDFS Cybersecurity Regulation (23 NYCRR 500) includes 23 sections that outline requirements for enacting a cybersecurity program. The regulation requires covered institutions to assess cybersecurity risks and develop plans to proactively address those risks.

To comply with NYDFS Cybersecurity Regulation, entities will need to adhere to several requirements that are similar to the NIST Cybersecurity Framework:

  • Identify all cybersecurity threats…internal and external 

  • Employ defenses to protect against threats 

  • Implement systems to detect cybersecurity events 

  • Address all detected cybersecurity events 

  • Remediate every cybersecurity event 

  • Perform required regulatory reporting

Conclusion

Since Binance USD is one of the only stablecoins that are subject to regular third-party audits and strictly regulated to maintain a 1:1 BUSD to USD ratio, it is considered by many to be one of the safest stablecoins available on the market.

In the crypto industry, new partnerships have also emerged for this stablecoin including BitPay, Simplex, Moonpay, Alchemy, and several more. In fact, Binance has recently released Binance NFT which supports BUSD quotations for NFT products. 

BUSD is one of the few stablecoins that are highly regulated. In addition, it is very accessible and can be used for different trading and investing strategies.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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