Episode Three of this educational series, Meet the Stablecoins, introduces users to the third largest stablecoin by market capitalization — BUSD.
The Hummus Exchange is an Automated Market-Maker (AMM) built exclusively for swapping stablecoins on the Metis Andromeda network with extremely low slippage and minimal fees. The protocol’s design allows for the pools to not only interact with each other but also to be flexible and grow relative to the natural supply and demand characteristics of the market. The backbone of the Hummus protocol is the staking mechanism. Hummus allows you to deposit and then stake certain stablecoins “single-sided” in its liquidity pools. This design allows new stablecoins to be added seamlessly, without complications evident in legacy AMM designs.
BUSD is a fiat-backed stablecoin founded by Paxos and Binance which is pegged 1:1 to the US dollar. With nearly $20 billion in circulation, BUSD is the third largest stablecoin and the sixth largest overall cryptocurrency by market capitalization. Like many other stablecoins, it is designed so that one BUSD token can always be exchanged for one US dollar, and vice versa.
Paxos maintains the peg by holding in custody an amount of US dollars equal to the total supply of BUSD, acting as its reserves in FDIC-insured US banks or backed by US Treasuries. Therefore, the pegging mechanism is quite simple: when a user converts US dollars (fiat) to BUSD, Paxos holds the fiat in custody and an equal amount of BUSD tokens are created and given to the user. When a user converts BUSD to US dollars, an equal amount of BUSD tokens are burned and the fiat is given to the user from the reserves.
Paxos, the token’s issuer, publicly releases monthly attestations of BUSD’s reserves. The New York State Department of Financial Services regulates BUSD tokens. With this authority, Paxos can freeze accounts and remove funds if needed due to illegal activity.
BUSD tokens are easily available through Binance’s exchange, fiat gateway services, or by sending US dollars to Paxos to mint new BUSD tokens.
Paxos issues BUSD on the Ethereum network. The BNB network offers a related product, the Binance-Peg BUSD, but that is beyond the scope of this article.
Very recently, Binance announced that it would automatically convert users’ existing balances and new deposits of USDC, USDP and TUSD stablecoins on its exchange to BUSD at a 1:1 ratio. Among other things, this action will make spot trading, margin trading, futures, loans, staking, and other services utilizing these three stablecoins on the Binance exchange no longer possible.
Users can swap BUSD for other stablecoins on the Hummus Exchange with extremely low slippage and fees. They can also stake BUSD to generate yield, and stake HUM alongside it to boost that yield.
Come check us out! Stop by to swap or stake around for longer.