How independently attested fiat reserves and licensing have helped BUSD maintain its peg during recent stablecoin volatility.
What kind of fiat-backed stablecoins are trustworthy?
Based on the independent audit of fiat currency reserves and compliance licenses, BUSD has survived the stable currency oscillation period.
BUSD is a compliant stablecoin that is anchored to fiat currency reserves and is regularly audited. It has always been one of the most trusted stablecoins in the market.
Other stablecoins, such as algorithmic stablecoins, are subject to market volatility due to lack of security guarantees.
BUSD maintains its peg ratio with sufficient fiat reserves, is regularly audited by Withum, and maintains NYDFS Green List status
Where does the confidence in stablecoins come from? All along, the most important confidence in BUSD comes from regulatory compliance. BUSD complies with strict guidelines and maintains transparency to the user community. Even in the recent market environment with frequent de-anchoring events, BUSD has not disappointed users. Unlike algorithmic stablecoins, BUSD’s fiat currency reserves are transparent and verifiable, and its sufficient fiat currency reserves also jointly maintain BUSD’s dollar-pegged ratio, which is not all stablecoins in the market can do.
Since the launch of Tether (USDT) in 2014, stablecoins have been an important currency in the eyes of crypto asset investors. In a highly volatile market, the advantages of a relatively stable currency are obvious and therefore popular. However, the stability of stablecoins depends on the stability of the peg ratio.
The way different stablecoins are pegged (whether they are pegged to USD, EUR, or even other crypto assets) is very different. Over time, some anchoring methods worked so well that they gradually became mainstream. Looking to the future, coupled with the recent de-anchoring event, the importance of regulation will increase day by day for stablecoins to remain stable.
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What conditions must be met for stablecoins such as BUSD to ensure stability?
Stablecoins that are truly trustworthy for investors need to be the best in regulation, auditing and reserves.
1. Sufficient legal currency reserves as security guarantee
The stability of stablecoins depends on whether the anchored currency can maintain price stability in highly volatile market conditions. Therefore, it is best to choose assets that are safe and not easy to depreciate for fiat-anchored stablecoins.
Among various reserve assets, fiat currency is a good choice. As such, 96% of BUSD’s fiat reserves are in cash and cash equivalents, with the remaining 4% in U.S. Treasury securities. Such a USD-pegged portfolio is an industry-leading design, among which U.S. Treasuries are the most trusted interest-bearing securities in the world. In addition to ensuring adequate collateral, Paxos has designed transparent procedures for the minting and burning of BUSD. Additionally, Paxos can freeze accounts and remove funds if necessary in the event of illegal activity. All of these principles are consistent with the Trust Charter and the New York State Banking Law for stablecoins.
2. Transparent Reserve Audit Procedures
Binance believes that the stability of the fiat-anchored stablecoin depends on the fiat currency reserve behind it, and must be regularly audited by a credible auditing agency so that users can keep abreast of the reserve fund at any time.
The reserves of BUSD are audited by Withum and audit reports are issued monthly.
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3. Licensed and regulated by regulators
This is a necessary step. When stablecoins are regulated, investors can gain the protection of regulators and thus have more confidence in stablecoins. The future stablecoin must be a regulated stablecoin.
BUSD is issued by Binance’s partner Paxos, and both the stablecoin and its issuer are regulated by the leading New York Department of Financial Services (NYDFS). BUSD is one of the very few stablecoins with regulatory compliance and security.
In addition, BUSD is also a Green List member of NYDFS and is pre-approved for custodial and trading, something that many large-scale similar products in the market cannot do.
Regulation, auditing and reserves are the three main pillars of stablecoins
In simple terms, regulation, regular audits and adequate reserves can prevent de-pegging factors from occurring, thereby preventing de-pegging.
Generally speaking, insufficient reserves, high risk of collateral assets, and poor management can all lead to stablecoins de-pegging. And the three pillars of BUSD ensure that these factors do not occur, providing security for the most important stakeholders in the ecosystem – users.
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Stablecoin investment rejects fluke
Various stablecoins, including BUSD, are an important part of the cryptoasset ecosystem, and we hope investors hold stablecoins because they truly have confidence in them. Therefore, make sure that the stablecoins you hold meet the above three key criteria.
Please check Binance official website or contact the customer support with regard to the latest information and more accurate details.
Binance official website is here.
Please click "Introduction of Binance", if you want to know the details and the company information of Binance.
Comment by Hans
April 24, 2024
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