High Quality Reserves, Audits, and Regulation – Sponsored Bitcoin News

What is BUSD? Recently, there have been many questions about the safety and soundness of products in the crypto space. There have been many questions about stablecoins in general, so this piece is intended as an explanation of BUSD.

First and foremost, BUSD is a stablecoin pegged to the US Dollar (USD) which came from a partnership between Binance and Paxos. BUSD is issued by Paxos Trust Company, an NYDFS-regulated entity, on the Ethereum blockchain.

This regulated status comes with some conditions attached which restrict the actions that Paxos is allowed to undertake. This is in addition to the NYDFS having the authority to evaluate Paxos’ operations and oversee the stablecoin.

BUSD is designed with three important areas in mind: high quality reserves, audits, and regulation. Here are some of the key principles behind how BUSD is run, spelled out in simple terms:

BUSD Reserves Are for Token Holders

The reserves do not belong to Paxos, nor to Binance. They are, instead, for the benefit of the holders of BUSD. This means that Paxos does not own the principal within the BUSD reserve, does not commingle it with corporate funds, does not have the ability to use these funds for other purposes, and must be able to clearly identify and segregate the reserve at all times.

In short, it has to be kept separate and safe. In the case of a bankruptcy of Paxos, the reserves are intended to be for the benefit of the BUSD holders, not the creditors of Paxos.

Paxos also uses major financial markets custodians to hold the securities within the BUSD reserve, meaning even if everyone at Paxos were to cease to exist, those securities and the dollars on deposit at banks are still identifiable and retrievable for the benefit of the token holders. Even in the unlikely event of this occurring, the assets are safe and secure, and another entity will be appointed to unwind the reserves and return the money to the BUSD holders.

Prudent Management of BUSD Reserves

BUSD is a US Dollar stablecoin, and Paxos and Binance take the view that BUSD itself should be as close to the representation of a dollar on the blockchain as possible. What this means is that the reserves of BUSD are kept extremely conservative, in the types of instruments that performed well even in the financial crisis of 2008. Additionally, beyond just Paxos’ preference, NYDFS rules and regulations prevent Paxos from investing the reserves in a more aggressive fashion beyond the assets listed…