What is Binance USD (BUSD) and How Does It Work?

What is Binance USD (BUSD)?

Binance USD or BUSD is another proof of packaged tokens that are tied to the value of another asset and are often referred to as blockchain tokens: for example, fiat currency, treasure stones, stocks, or real estate. In this context, BUSD is pegged to the US dollar, making it a wrapped token.

It’s also worth noting that most wrapped tokens behave like collateralized tokens and require another crypto asset (e.g., a local token of a decentralized exchange or DEX protocol) to be staked/locked in order to access the wrapped token.

How Binance USD Works

Binance USD is a fiat backed collateralized and regulated stablecoin pegged 1:1 to the US Dollar. The USD-denominated stablecoin was founded by two parent companies, Paxos and Binance, and is approved by the New York State Department of Financial Services (NYDFS). Notably, it was one of the few stablecoins approved in the US.

Paxos is a regulated blockchain technology company that offers its stablecoin as a service product to outside companies. In this case, they act as third-party reserves for Binance’s stablecoin in an FDIC-insured U.S. bank.

As with other packaged stablecoins, BUSD was created to enable easy transactions in the decentralized finance (DeFi) ecosystem. With BEP-2 wallet support
ERC-20
Although built on the token standard, the fiat-backed stablecoin is interoperable with multiple blockchains.

For every BUSD token a person owns, the equivalent of that amount is held in a real bank account. As mentioned above, an amount equal to the actual BUSD supply is held by Paxos, which acts as a third-party reserve in an FDIC-insured U.S. bank.

Since BUSD is a wrapped token, it is subject to the same market activities as its price equivalent. In other words, when the value of the fiat currency rises or falls, the same effect resonates with the BUSD token.

In general, BUSD is found in three different chains; Ethereum, Binance Smart Chain and Binance Chain can achieve three main features: accessibility, flexibility, and speed.

A Different Stablecoin: BUSD Technology

The mechanism behind BUSD is quite simple, especially compared to how difficult other stablecoins are to understand. Specifically, BUSD uses a deflation mechanism that ensures that the supply and reserve of BUSD/USD is maintained in a 1:1 ratio on a continuous basis. In other words, the mechanism ensures that each BUSD is redeemed for 1 USD in Paxos reserve.

When BUSD is purchased, a BUSD equivalent of this amount is created and the price equivalent is paid to Paxos for storage.

On the other hand, when a BUSD is sent to Paxos, the token is then burned by the blockchain infrastructure platform and provided with the price equivalent when a sell order is requested to maintain a fixed BUSD supply/reserve. AMERICAN DOLLAR. In a ratio of 1: 1.

The BUSD token is based on the ERC-20 token standard. As a result, it is compatible with a variety of ERC-20 smart contacts. Similarly, the token standard adopted by BUSD ensures interoperability between Ethereum-based exchange wallets.

What Does Binance Usd – BUSD Do?

BUSD has numerous use cases for investors and traders, and the most famous of them is to avoid price volatility in the crypto market. Since BUSD is a
stablecoin
, it is used as a store of value during periods of high volatility in the cryptocurrency market.

Another popular use of BUSDis arbitrage trading, where traders wait for periods when the value of USD to BUSD falls below a fixed 1:1 ratio.

For example; There are times when the value of the USD against the BUSD drops slightly below $1. During this time, traders can buy BUSD in bulk and wait for the value of BUSD/USD to return to a parallel position. At this point, they can sell it back for fiat currency and earn as little as $0.02 per BUSD traded.

Other notable uses of BUSD include making profits from other trading activities rather than converting them directly into fiat currency. This makes it easier to reinvest in an exchange, for example through trading or a pool of liquidity.

Finally, BUSD is one of the connected tokens. All in all, BUSD is one of the most standard pegged tokens that adorn the stablecoin market as it provides the necessary transparency and security, making it the best choice for investors and general crypto enthusiasts.

What Are the Roles of RWAs in Decentralized Finance (DeFi)?
Real World Assets, or RWAs, are things like real estate, invoices, bonds, or even fine art that exist outside of crypto but are brought into blockchain systems through tokenization. Simply put, they are physical or traditional financial assets turned into digital tokens. These tokens can then be used within DeFi platforms just like any other crypto token. RWAs have become a hot topic in DeFi because...
What is Jupiter (JUP) and Why It Matters in Solana DeFi
Jupiter functions like a custom broker in Solana’s DeFi world. It does not host its own trading pools. Instead, it searches across other decentralized exchanges on Solana and picks the best price for users to swap tokens. That makes every swap more efficient and cheaper. It launched in October 2021 and has grown quickly because it delivers real value for traders and developer The rise in its popularity...
What Is Volatility? Understanding Market Fluctuations and Their Significance
In financial markets, volatility is one of the most critical concepts investors need to consider when making investment decisions. Representing both risk and opportunity, volatility can act as a guidepost for investors while also signaling uncertainty. This article aims to provide a comprehensive overview of volatility, its definition, causes, measurement methods, and significance in investment decisions....
US Announces New Tariff Rates - Tornado Cash Case Officially Ends
US Announces New Tariff Rates US President Donald Trump announced that he would postpone the entry into force of higher tariffs on imports until August 1. However, new tax rates were announced in official letters sent to 14 countries including Japan, South Korea, Thailand and Indonesia. These countries face rates ranging from 25% to 40%. The tariffs, previously scheduled to go into effect on July 9,...
Weekly Crypto Market Reports: June 30, 2025
In the crypto market report covering the week of June 30 – July 7 prepared by the ICRYPEX Research team, we have compiled current developments regarding crypto assets, price movements of crypto assets, and macroeconomics. You can take a look at the general flow of this report immediately below and reach all the developments that took place in the 7-day period from Weekly Crypto Market Reports:...


Create an account

Now create an account where you can use your knowledge.