BinanceUSD (BUSD) has become the third-largest stablecoin by Market Capitalization.
In detail, CoinMarketCap gave Binance USD a Market Capitalization of $13.226 billion on 22 November 2021. That made BUSD the number three stablecoin after Tether (USDT) and USD Coin (USDC). CoinMarketCap gave Tether a $73.124 billion Market Capitalization and USD Coin a $36.409 billion Market Cap on the same day.
Hence, BUSD has quietly become the third most popular stablecoin, but what is it? Moreover, why is Binance USD so popular?
What is BinanceUSD (BUSD)?
The BUSD is a stablecoin built by Binance and Paxos. Binance is the organization that built the Binance Smart Chain (BNB) blockchain. Paxos is the organization behind the Pax Dollar (USDP) stablecoin.
They describe the BUSD as a bridge between traditional finance and DeFi (decentralized finance). To fulfill that role, Binance USD serves a gateway to the Binance Ecosystem. Hence, BinanceUSD (BUSD) is a smartcoin built on the Binance Smart Chain.
They claim the BUSD complies with the New York State Department of Financial Services (NYDFS) regulatory standards. In addition, they claim BinanceUSD is subject to regular third-party audits. However, they do not identify the “third-party auditors.”
Stablecoins need third-party audits and regulation because of their nature. To explain, stablecoins such as BinanceUSD are cryptocurrencies that contain smart contracts. The smart contract is a decentralized app (DApp) makes payment in fiat currency from a bank or trust account when you spend the stablecoin.
Thus, BinanceUSD makes payment in US Dollars when you spend. Therefore, BUSD is a mechanism for accessing dollars in the bank. Holders need regulation and audits to verify the dollars are in the bank. If there are no dollars in the accounts, BUSD is worthless.
The attestation reports show the Paxos Trust Company holds the dollars backing BinanceUSD. The last Monthly Attestation Report for 30 September 2021 shows Paxos held $922.265 million in USDP and US Dollars. The USDP, or Paxos Dollar, is the stablecoin formerly known as Paxos Standard (PAX).
Advanced Features of BUSD
The BUSD has several advanced features, including Multi-Assets Mode. Binance claims Multi-Assets Mode allow trading with stablecoins. For example, you could use Multi-Assets Mode to trade BUSD for Bitcoin (BTC), Ethereum (ETH), or synthentic assets.
In addition, they claim you can convert other stablecoins, including Tether, USDC, and the Pax Dollar (USDP) into BUSD with zero transaction fees. Furthermore, they claim you can create multiple trading pairs to trade cryptocurrencies for BUSD.
Other advanced features for BinanceUSD include margin lending. Margin lending comprises loans to finance trading and speculation. They also offer strategy trading for people who want professional trading, and a suite of advanced trading tools.
The latest advanced feature at BinanceUSD is a marketplace for nonfungible tokens (NFTs). To explain, people use the marketplace to purchase NFT artwork with BinanceUSD (BUSD). For example, they were selling David Bowie and gaming artwork on 19 November 2021. Additionally, they were selling NFT trading cards for Ethereum (ETH) on 19 November 2021.
The BUSD Derivatives
Interestingly, they offer BinanceUSD (BUSD) derivatives. The BUSD derivatives include Binance Futures, USD-M Futures; quarterly or perpetual contracts they settle in USDT or BUSD). COIN-M Futures; quarterly or perpetual contracts they settle in traditional cryptocurrency.
They also offer European style Vanilla Options. To explain, a Vanilla Option gives a financial instrument the holder the right but not an obligation to buy or sell an underlying asset. Hence, the BinanceUSD Vanilla Options will give holders a future right to buy cryptocurrencies, stablecoins, NFTs, or synthetic investments.
Some of the most fascinating BinanceUSD derivatives are leveraged tokens. The leveraged tokens allow for margin trading of blockchain instruments. In margin trading, speculators borrow against future trading profits to finance trades.
Hence, they are building BUSD trading and futures markets. Thus, I can imagine stock exchanges, investment banks, and major trading houses adopting and using BUSD and BinanceUSD trading solutions.
Derivatives could add enormous value to BinanceUSD because the derivatives market is gigantic. For example, the Bank of International Settlements (BIS) estimates the over-the-counter derivatives market had a gross market value of $15.8 trillion in the second half of 2020.
Derivatives are a growing market. For instance, the BIS estimates the gross market value of the over-the-counter derivatives market grew by $300 billion in the second half of 2020.
What Value Does BinanceUSD Have?
Mr. Market gives BinanceUSD (BUSD) some value. On 22 November 2021, CoinMarketCap gave BUSD a Coin Price of $1, a Market Capitalization of $13.226 billion, a Fully Diluted Market Cap of $13.218 billion, and a 24-Hour Market Volume of $7.145. billion.
They based those numbers on a Circulating Supply of 13.22 billion BUSD. BinanceUSD was CoinMarketCap’s 18th largest cryptocurrency on 22 November 2021.
In comparison, CoinBase gave BinanceUSD a Market Cap of $13.2 billion, and a 24-Hour Market Volume of $7.1 billion on 22 November 2021. CoinBase data shows BinanceUSD is not stable. Instead, its price can fluctuate wildly. In fact, CoinBase gave BinanceUSD an all-time high Coin Price of $6.29.
Thus, stableoins are not stable because Mr. Market can inflate their prices. To elaborate, if stablecoins were truly stable, their Coin Prices would always match the fiat currency. Instead, the prices can fluctuate widely, which shows dangerous instability.
Despite that, I think BinanceUSD (BUSD) offers enormous value as a trading mechanism. To explain, I think BinanceUSD could enable people all over the globe to trade in US Dollars, which are the world’s reserve currency.For example, a Brazilian or Thai could buy US stocks or trade in US derivatives with BinanceUSD.
I think BinanceUSD (BUSD) deserves investigation, because it seems to have moneymaking uses, namely trading. If you want a stablecoin that could grow witht he markets, BinanceUSD is worth investigating.
Originally published at https://marketmadhouse.com on November 22, 2021.