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What is BUSD? Recently, many questions have been asked about the safety and soundness of products in the cryptocurrency space. This article aims to explain BUSD
as there have been many questions about stablecoins in general. His BUSD, a partnership between Binance and Paxos, will be issued on the Ethereum blockchain by the NYDFS-regulated Paxos Trust Company.
This regulatory status is accompanied by several conditions that limit the actions Paxos can take. This is in addition to NYDFS, which has the power to evaluate Paxos operations and oversee stablecoins.
BUSD is designed with his three key areas in mind: quality reserves, audit and regulation. Below is a brief description of some of the key principles behind how BUSD operates. , also on Binance. Instead, they are for the benefit of his BUSD holders. This is because Paxos does not own the principal within his BUSD reserves, does not mix it with corporate funds, does not have the ability to use these funds for other purposes, and keeps the reserves clear at all times. It means that they must be identifiable and separable.
That means they must be kept separate and secure. In the event of Paxos bankruptcy, the reserves are intended to benefit BUSD holders, not Paxos creditors.
Paxos also uses major financial market custodians to hold securities within his BUSD reserves. Token holder interests. Should this happen, the assets are safe and another organization will be appointed to unwind the reserves and refund the BUSD holders.
Careful management of BUSD reserves
BUSD is a US dollar stablecoin, and Paxos and Binance are committed to ensuring that BUSD itself is as close to a dollar representation as possible. I think it should be. On the blockchain as much as possible. What this means is that BUSD reserves are being kept very conservative in the kind of product that did well even in the 2008 financial crisis. More aggressive fashion beyond the assets listed here.
So what exactly are you preparing? Below:
- US Treasury bills with a maturity of 3 million or less. T-Bills are an obligation of the United States government itself, backed by the full trust and credit of the United States. So far, the U.S. government has not failed in its obligations. Equally important, by keeping the maturity of the financial instrument very low, large fluctuations in interest rates have little or no impact on the value of the T-Bills themselves.
- Overnight reverse repo. This is a very complex representation of a short term fully secured loan. The economics of an ON Reverse Repo are: Paxos has cash ready. Paxos lends that cashout overnight to creditworthy banks. However, banks, even good ones, sometimes go bankrupt. To provide additional security, Paxos also holds collateral of higher value than the loan in the form of US Treasurys provided by the borrower, and Paxos will have the ability to recover the funds if the counterparty to the loan fails. can liquidate the treasury.
- Bank deposits. These are exactly what they sound like: dollars deposited in the bank. There are these two types of BUSD reserves. The first is the amount of custodian banks holding Paxos securities. These securities mature and may require reinvestment or payment of coupons or other interest. The second is the amount at banks running fast payment networks. This will allow Paxos to offer his 24/7 mint and burn service for the stablecoin. This is because traditional banking and stock markets are only open about 25% of the time (1 hour). Stablecoins are 100% up and running. For the latter, Paxos also purchases private market insurance against deposits in the event of bank failure. More than
. Others cannot be placed in reserves. There are some other restrictions on investments to keep the reserve as safe as reasonably possible.
- No leverage. Paxos may not borrow into securities, invest them further, or expand its balance sheet to increase risk.
- There are no high credit risk products (except those mentioned in bank deposits above). Paxos can only invest in the above list and cannot own commercial paper, corporate bonds, etc.
BUSD reserves are transparent
When you own a stablecoinyou need to know what’s insidePaxos publishes stablecoin reserves every month, anyone can verify that BUSD is 100% cash or cash equivalent backed.
First, Paxos generates unaudited monthly reserves within five business days of the end of the month. The rapid release of information to the public allows all token holders to know instantly about their current investments.
The second is an attestation in which an auditor reviews her Paxos holdings and provides a certificate of accuracy, completeness and fairness of disclosure (currently an unaudited holding (including asset reviews). The exam is conducted in accordance with the certification standards set by the American Institute of Certified Public Accountants.
In short, BUSD is conservatively invested, has few bankruptcies, is transparent, and is rather boring from a financial instrument perspective. This is a feature, not a bug. Because in times of uncertainty, simplicity and transparency are more important than in good times, and all prices are rising. BUSD is built to be as resilient as possible during downturns.
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