Stablecoin is a very popular term in the cryptocurrency market, developed with the aim of limiting market volatility. Today we introduce two stablecoins BUSD and BGBP of Binance.
The cryptocurrency market is very volatile. The prices of Bitcoin, Ethereum, XRP, and nearly every other coin are often fluctuating, making investors feel less interested in cryptocurrency trading. Holding highly volatile assets has pros and cons, but no one is happy to lose money.
This volatility not only affects investors but also consumers and owners of e-commerce businesses. When a payment is made in a particular cryptocurrency, its price may change before the transaction is confirmed and the funds are transferred, leading to an imbalance when one party loses and the other is not expected to benefit.
Stablecoin is solution
Crypto exchanges and businesses need to deal with volatility, and in 2014 the first fiat-backed cryptocurrency was created - Tether (USDT). Since then, many exchanges and other financial institutions have built their stablecoins, which are now widely used in the cryptocurrency market. Fiat stablecoin is the most famous and most used stable coin. To ensure their value is always stable, these coins are pegged at a 1: 1 ratio to major fiat currencies such as USD, GBP or JPY.
This means that 1 million USD of fiat currency will have to be used to back up 1 million USDT, protect its value and prevent fierce fluctuations. The main benefit of stablecoins is that the price volatility has been minimized to the maximum thanks to the non-correlated asset used as a hedge, eliminating this currency risk. Bitcoin price usually has a very large USD correlation with altcoins, and if one coin moves, the rest follow. Stablecoins allow users to exit the position of a highly volatile cryptocurrency without leaving the market or exchanging money for fiat.
However, this cryptocurrency has one huge downside - the issuer must be a trustworthy institution. There is almost no way to be sure that the stablecoin issuer will always reserve 1: 1 escrow fiat money at all times, or even if they reserve money according to their commitments. or not. At best, the issuer can increase the level of transparency by auditing the asset, but the mechanism still cannot reach the threshold of trustlessness.
In other words, stablecoins can act as a "haven" for investors, provided that the issuer of the stable coin must comply with the relevant legal regulations and manage a security fund. responsible way.
What are Binance's stablecoins BUSD and BGBP?
To provide a "haven" for all Binance users, while also supporting fast and economical transactions, Binance has developed its fiat-backed stablecoins. The first stablecoin is BUSD, which is pegged at a 1: 1 ratio to the US dollar (USD). The second stablecoin is BGBP, which is pegged at a 1: 1 ratio to the British pound (GBP).
Binance's BUSD and BGBP stablecoins are issued on two blockchains: Ethereum as an ERC-20 token and Binance Chain as a BEP-2 token. Binance has integrated them into many exchanges like Binance.com (with reduced transaction fees), Binance.US, and many others. Currently, they can also be traded on popular decentralized exchanges such as Binance DEX, Curve Finance, and Uniswap.
Both of these stablecoins serve as a valued intermediary for other cryptocurrencies. They protect against market fluctuations as well as provide investors with a hedging tool to manage risk. BUSD and BGBP can also be traded instantly with other cryptocurrencies supported on Binance.com.
Besides fiat-backed stablecoins, there are other classes of stablecoins, such as commodity-backed stablecoins, algorithmic stablecoins, and crypto-backed stablecoins. Want to learn more about the different types of stablecoins? Come to VakaFx to learn more.
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