• Binance’s USD stablecoin (BUSD) has come under scrutiny due to reports of insufficient backing.
• BUSD is pegged to the dollar, and Binance must have a stockpile of U.S. dollars in a bank account to guarantee that one BUSD will always be worth one USD.
• Recent revelations have cast doubt on the process, with Binance disclosing that bugs in its system had resulted in at least $1 billion in under collateralization of its Binance Smart Chain BUSD supply.
The trading platform Binance has recently come under fire due to its stablecoin, BUSD, which is pegged to the US Dollar. Binance must have a stockpile of US Dollars in a bank account to guarantee that one BUSD will always be worth one USD. Unfortunately, recent reports have raised concerns about the integrity and longevity of the the stablecoin’s peg.
These concerns were further amplified when Binance disclosed that bugs in its system had resulted in at least $1 billion in under collateralization of its Binance Smart Chain BUSD supply. This means that there was not a sufficient amount of US Dollars in reserve to back the value of BUSD in circulation. This could potentially cause the BUSD to deviate from its peg, meaning that one BUSD would no longer be worth one USD.
To combat these issues, Paxos, a New York-based financial technology startup, has stepped in and guaranteed the full collateralization of BUSD on the Ethereum blockchain in US Dollars. This helps to provide an external, audited guarantee that the BUSD will remain pegged to the US Dollar and that there is a sufficient amount of US Dollars in reserve to back the value of BUSD in circulation.
Despite the issues, BUSD has managed to maintain its peg until the time of writing. It remains to be seen if these issues will have any long-term impact on the value of the stablecoin. Binance regularly releases updates detailing the overall quantity of BUSD in circulation and the equivalent number of US Dollars kept in reserve, allowing users to assess the situation.