Stablecoins have emerged as a significant player in the crypto market this year, driven by user demand for flexible liquidity at the time of the Fiat currency. These currencies are defined as a type of digital currency that can be based on or supported by real world resources. These assets could be products like fiat money, gold or silver, or any other cryptocurrency. As their name implies, stable currencies are designed to create a value that is as stable (rather) stable as cash, in contrast to the general volatility of cryptocurrency trading today.
To further illustrate this scenario, a typical Fiat-backed Stablecoin token issuer can hold 100,000 tokens, each valued at US 1 USD. Token holders can trade these coins just like any other cryptocurrency. The main difference is that the holder can redeem an equal amount of coins for USD at any time. Since the USD is fairly stable, users do not have to worry that their money will lose its value overnight. As a result, according to CoinMarketCap, there are currently 120 120 billion worth of stable currencies in circulation.
Although stable currencies have emerged as opportunities to reduce volatility, various sections of the crypto industry have raised questions about their centralized nature. Since the issuer has no way of proving the number of backing funds, the main stable currency of 1: 1 peg may not mean much for their supporting assets like the US dollar and other fiat currencies, especially without proper regulation. That said, their potential in many areas of daily use is still unclear.
To help prove their use, Binance launched BUSD with Paxos in 2019. A major driving force behind this release was ensuring that each unit of Stablecoin was verifiably supported by US dollars and in accordance with regulatory and public standards.
A question of reserve
To give users peace of mind and give more credibility to questions about reserves, BUSD’s assets are being held in FDIC-insured banks in USD. In a Paxos reserve report, 96% of BUSD’s total market capitalization is backed by cash and other cash equivalent reserves, and the U.S. Treasury bill has returned 4%.
To further guarantee these numbers, BUSD continues to be one of the few stable currencies that provides monthly audited reports of their reserves. Therefore, any BUSD holder can verify at any time that the BUSD token supply is compliant with the US dollar and is being handled by Paxos.
The combination of audit and additional measures to verify BUSD’s asset holdings is increasingly important in addressing one of the major concerns raised by the industry today.
The second major concern of stable currencies today is the current control gap, which many believe provides little protection to investors, especially in fraudulent activities. Addressing this, BUSD adheres to the highest compliance standards of the New York State Department of Financial Services (NYDFS). Having a regulator allows regulators to “green list” BUSD, which is pre-approved for custody and trading by existing virtual currency licenses.
Paxos, their stable provider, is controlled by the same agency, which ensures:
- The value of each stable token is directly linked to the US dollar and the amount of the “reserve” fund is at least equal to the number of outstanding fixed currency outstanding.
- Regulators are overseeing stockpiling and maintenance in support of stable currencies.
- Assets are being stored in the most secure form (e.g., treasury bills, insured bank accounts).
- The reserves are completely isolated from corporate assets and are held bankrupt-remote under New York banking law.
This level of regulatory oversight helps maintain consumer confidence in a property that operates in a largely unregulated industry.
Stablecoins in action
Stablecoins offer several additional benefits for regular cryptocurrencies in the right circumstances. This often includes mitigating the effects of market volatility, managing recurring transactions, and building a decentralized money (DFI) basis.
Managing market volatility
Cryptocurrency prices fluctuate widely based on popular opinion or personal business decisions. Traders can then decide to trade their fallen cryptocurrency for an asset or Fiat-backed stable coin to protect the value of their digital currency holdings. As a safe haven, investors can reduce risk by putting their stability in a more stable investment vehicle.
Like other Fiat currencies, stable currencies can be used for day-to-day transactions such as buying coffee or transferring money abroad to a family member. Fees can be lower, faster than transacting through the banking system, and ensure that the receiver receives a fair price for the trade.
Building Defy Foundation
Finally, a stable currency is essential for the continued growth in a world of decentralization that provides the foundation. The BUSD format is being used for various functions in Smart Chain (BSC) and Ethereum (ETH), one of which is lending. In loan determination, users can over-guarantee an existing digital asset with a stable currency to ensure a consistent market price, and prevent any fluctuations caused by the underlying collateral.
An example of how stable currencies can provide stability to sustainable currencies in order to continue to grow as an infrastructure and to play the role of traditional cryptocurrencies as a means of exchanging cryptocurrencies.
Efforts to comply
With the increasing use of stable currencies, many believe that the financial industry will suffer if businesses fail to address these concerns.
For this reason, BUSD continues to work with an emphasis on compliance. Doing so can protect the stability of loyal users and regulators and open up more opportunities for both the public and private sectors. As more stakeholders show acceptance for a faithful stable currency, many believe that growth opportunities will follow very closely.
At a recent virtual press conference, Binance CEO Changpeng “CZ” Zhao shared, “Our view is that regulators come in very good to get 10%, 20%, 80%, 99%. [crypto] Acceptance ”
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