In the cryptocurrency market there are thousands of digital assets, but without a doubt the largest by capitalization are the ones that end up triumphing.
In this guide, you will be able to find out which stablecoin you should own and trade, and the differences between BUSD, USDT and USDC.
There are many stablecoins in the cryptocurrency market. The largest by market capitalization are USDT, USDC, DAI, and BUSD.
The common thing with these stablecoins is that they all track the US dollar. There are also other types of stable coins like WBTC which is backed by Bitcoin and tracks the price of BTC.
If you trade cryptocurrencies on Binance or other exchanges, you can see that there are usually more than one stablecoin and more stablecoin pairs for each coin, such as BTC/USDT, BTC/USDC, and BTC/BUSD.
Well, which one should you change? What is the difference between BUSD and USDT? What is the difference between USDT and USDC?
BUSD vs USDT
BUSD is a stablecoin developed by Paxos in partnership with Binance. Paxos is also an issuer of other stablecoins Paxos Standard (PAX), HUSD and PAX Gold (PAXG).
BUSDs are approved and regulated by the New York State Department of Financial Services and are 100% backed by US dollars held in FDIC-insured US banks.
Additionally, an auditing firm (Withum) audits BUSD on a monthly basis to check if the money held in banks matches the supply of BUSD.
On the other hand, USDT is not regularly audited. The last audit published on the Tether site dates back to 2018 and was carried out by Sporkin & Sullivan LLP.
Another difference between BUSD and USDT is that the reserve backing USDT is held in offshore banks that are considered less trustworthy. To date, there have also been many complaints about Tether.
So it can be said that BUSD is safer than USDT. This is really true. But, if you are an average trader, it doesn’t really matter whether you trade BTC/BUSD or BTC/USDT.
But, if you want to have really big sums of money in the form of stablecoins, holding just BUSD or splitting the money between BUSD and USDT might be a better idea.
Also, trading coin margin futures instead of USDT margin futures on Binance or other exchanges could be safer in the event of a Tether-related catastrophic event.
Other than that, there is really no difference between BUSD and USDT. If you are an average trader, you should be looking for volume, arbitrage opportunities, etc.
If you want to trade all major stablecoins like BUSD, USDT, and USDC and pairs like BUSD/USDT, you should use Binance.
USDC vs. USDT
After USDT, USD Coin (USDC) is the largest stablecoin by market cap. USDC is governed by Centre, a membership-based consortium, of which Circle and Coinbase are founding members.
So USDC is basically a stablecoin launched and governed by Circle and Coinbase. USDC is also audited monthly by an auditing firm, Grant Thornton LLP, as is BUSD.
The company behind USDC follows US regulations and works with established banks and auditors, which is not the case with Tether (USDT). So USDC, like BUSD, is safer and more transparent than USDT.
If we compare USDC to BUSD, both stablecoins are quite similar as they both follow US regulations and work with US banks and auditors.
Again, if you are a trader, you can trade USDC and USDT pairs. It really doesn’t matter that much.
But, if you are going to open large positions in cryptocurrencies, you may prefer currency margined products over USDT margined products. Also, you can have more than one stablecoin instead of relying on one to mitigate risks.
Reserve, Liquidity and Market Capitalization
One of the most important aspects of a stablecoin is its reserves. This is how a stablecoin can maintain a constant price despite changes in the cryptocurrency market.
USDT – Reserves and Liquidity
USDT has been the most well-known stablecoin and is widely used on crypto exchanges.
The other parts of the reserve include commercial paper and secured loans.
Commercial paper is a form of short-term unsecured debt that companies often issue to finance their payroll, accounts payable, inventory, and other short-term liabilities.
USDT – Liquidity
When we talk about Tether liquidity, we have to mention its problem with its reserves.
In 2019, Tether claimed that for every USDT coin on the blockchain, there is one dollar in cash held by the company.
However, the company did not have enough reserves to support 100% of the issued USDT. This also means that USDT has limited liquidity in its funds. Users found out and soon, the authorities intervened.
Tether (the company) was fined $41 million by the US Commodity Futures Trading Commission (CFTC). This was due to Tether’s false claims that its USDT Stablecoins are fully backed by real-world fiat money.
According to the CFTC’s findings, Tether’s reserves included “unsecured accounts receivable and non-fiat assets.”
This means that they do not have all the cash available and some of their funds are not backed by any type of asset.
Not only that, Tether only had enough reserves for 27.6% of days in a 26-month period. However, they assured that they have “100% reserves at all times.”
Essentially, for every USDT that was created on the blockchain, there is not enough cash in your stash to back it up.
This is different from what Tether claimed.
Tether updated its website to include more details about its reserves. As of today, Tether has released more details about its reserve structure, without specifying that they only hold 2.9% of their reserves in cash.
For now, Tether is holding steady despite previous downturns in the crypto markets.
However, if you are investing in this currency, it is important to note that there is some risk in USDT regarding its reserves and liquidity.
USDT – Market Capitalization
Nonetheless, USDT remains the stablecoin with the highest market capitalization. It also remains popular with crypto traders.
With a market cap of nearly $70 million, USDT holds 58% of the stablecoin market share. Tether is also often used as a way to hold money on trades when traders feel the market is extremely volatile.
Tether’s market capitalization grew faster than the other major coins.
USDT is widely accepted on most exchanges. Exchange trading has also become the main source of demand for USDT.
About 62% of the USDT issued by the Tether treasury flowed directly to exchanges, based on its 180-day average.
Since USDT is hosted on the Ethereum chain, the main blockchain that issues USDT has been the Ethereum chain. However, other chains such as TRON, OMNI, and OMG have also been issuing USDT recently.
Tron is now one of the top issuers of USDT with 37 billion USDT minted. This means that the amount of USDT in the market increases, which in turn increases the market capitalization of USDT.
BUSD – Reserves and Liquidity
On the other hand, BUSD is regulated and its physical dollars are stored in FDIC-insured US banks.
The biggest difference between BUSD and other stablecoins is that it is backed by cash (fiat). Other stablecoins, such as DAI, are also backed by other cryptocurrencies.
BUSD reserves are cash in the bank, while other stablecoins hold cryptocurrency reserves.
So the other stablecoins aren’t actually pegged to physical cash in the real world, making it more risky.
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Paxos and BUSD are approved and regulated by the New York State Department of Financial Services, ensuring maximum consumer protection.
As of June 30, 2021, around 96% of the reserves were held in cash and cash equivalents. The other 4% was invested in US Treasury bills. Unlike USDT, this is a large amount of cash that is held in reserves.
BUSD Pie Chart Reserves
This means that for every BUSD on the blockchain, there is one USD stored directly on Paxos in cash or Treasury bills.
Because of this, BUSD has more reliable reserves than USDT. This means that they are more financially stable and the coin becomes less risky to hold in the long run.
If all BUSD holders wanted to exchange BUSD for cash, there should be enough Paxos reserves to exchange each BUSD for one USD in cash.
BUSD is just one of the cryptocurrencies created by Binance, the other being BNB. You can learn more about the differences between BNB and BUSD in this comparison article.
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