What is Binance USD (BUSD)?
Binance USD, abbreviated as BUSD is a cryptocurrency founded by Paxos and Binance that is pegged to the U.S. dollar. In other words, one BUSD always has a value of one U.S. dollar. BUSD falls under the category of stablecoins, which aim to provide stability to the volatile cryptocurrency market.
What are the advantages of a stablecoin like BUSD?
In a volatile market like the cryptocurrency market, traders use stablecoins like BUSD to hedge their portfolios against fluctuations and declining prices. Once the market rises again, stablecoins like BUSD can be used to buy other cryptocurrencies like Bitcoin or Altcoins without having to resort to traditional FIAT currencies like U.S. dollars, Euros or Yen.
Today, the largest stablecoins have gigantic trading volumes and play a key role in many cryptocurrency trading activities.
What are the risks associated with stablecoins like BUSD?
Before investing money in stablecoins like BUSD, one should consider the following risks, especially:
- Centralization (a single entity usually controls a stablecoin)
- Lack of transparency
- Economic instability and inflation issues