Setting the Record Straight: BUSD Auto-Conversion
Mayur Kamat, Head of Product at Binance, talks about BUSD’s recent announcement and answers lingering questions from the community.
A few days ago, we introduced BUSD Auto-Conversion, a new feature that automatically converts all existing USDC, USDP, and TUSD balances into BUSD at a 1:1 ratio.
Following the announcement, there has been speculation and concern among the crypto community, especially for users who hold these assets on our platform.
Why Are We Doing This?
The answer is straightforward: this move is to benefit and protect our users.
Today’s crypto market offers a vast range of stablecoins. Some stablecoins are backed by real-world assets like fiat and gold, while some are backed by crypto. Many networks have their own stablecoin or collaboration with a stablecoin partner. For instance, BUSD carries the Binance brand but is actually issued by Paxos.
However, with the large, ever-growing selection of stablecoins, exchanges have no choice but to split their liquidity among one too many trading pairs. Let’s use BTC as an example. Pre-conversion, there are five stablecoin trading pairs for BTC available on Binance. Imagine each trading pair as a drinking glass, with the water in each glass representing liquidity. Essentially, BUSD Auto-Conversion will pour all the existing liquidity from USDC, USDP, and TUSD into one glass — BUSD.
From an operational perspective, this move is a logical next step. Improving stablecoin liquidity will consolidate trading volume; thus, all BUSD trading pairs will enjoy faster order-matching, better pricing, and less slippage. This saves users money and time and creates a more stable trading environment.
Finally, it’s important to note that users can still enter and exit the Binance platform with their preferred stablecoin, including USDC, USDP, and TUSD
Responding to Community Feedback
1. Is this a marketing ploy to increase BUSD holders?
No. The goal is to improve liquidity as well as to provide better prices and faster order executions for our users. Users can still deposit and withdraw other stablecoins. Technically speaking, this move will not drive more users (or usage) to BUSD.
2. Is BUSD Auto-Conversion the same concept as FTX’s USD basket?
Kind of! While BUSD Auto-Conversion shares some similarities with FTX’s USD basket, there are some key differences. FTX combines several USD-pegged stablecoins on its exchange into one basket labeled ‘USD’. On Binance, our system automatically converts all incoming USDC, USDP, and TUSD into one stablecoin, BUSD.
3. Does Binance believe stablecoins like USDC are inferior to BUSD?
Absolutely not. Users, not competitors, are and always will be the number one priority at Binance. We don’t base any of our decisions on what competitors are doing. BUSD Auto-Conversion is not a slight against USDC or other stablecoins. Circle’s CEO has even publicly stated his support for BUSD Auto-Convert in a recent Twitter thread.
On the Topic of BUSD
Some users may be genuinely concerned if they’re unfamiliar with BUSD and don’t understand its inner workings. Here, we’ll give a quick rundown of the mechanics behind BUSD and its relationship with Binance and Paxos.
Binance users have most likely seen BUSD somewhere on our platform. It’s a regulated, fiat-backed stablecoin issued by Paxos on the Ethereum blockchain and approved by the New York State Department of Financial Services (NYDFS).
BUSD’s fundamentals are as follows: 1 BUSD equals 1 USD, held in US bank reserve accounts managed by Paxos. When users convert their BUSD into fiat, Paxos burns the tokens and exchanges the equivalent amount in USD.
A critical distinction between BUSD and other stablecoins is the level of regulation Paxos upholds. BUSD is one of the few stablecoin projects that publish monthly reserve audits. Anyone — at any point in time — can view these reports to verify whether BUSD’s reserves are 100% backed by cash or cash equivalents.
Further, BUSD follows strict measures enforced by New York state regulators:
Paxos’ BUSD reserves are held in FDIC-insured bank accounts or US Treasury instruments.
Customer assets are protected from bankruptcy and kept separate from corporate funds.
How Will BUSD Auto-Conversion Work?
For users, there are two things to note regarding the BUSD conversion process.
Trading: In a nutshell, Binance users will conduct all their stablecoin trading via BUSD or USDT. Starting September 29, 2022, anyone holding USDC, TUSD, or USDP will see a combined BUSD balance in their trading wallet. The amount will remain the same as it was pre-conversion.
Deposits and withdrawals: We’re not removing support for USDC, USDP, or TUSD. Users will still be able to deposit and withdraw using their preferred stablecoin. Our system will automatically convert balances during deposits and withdrawals.
For example, a user holding USDC in a third-party wallet can deposit it on our exchange. The USDC is automatically converted into BUSD while users enjoy low spreads on all BUSD trading pairs. At any point in time, users can withdraw back into USDC or any other preferred stablecoin. Additionally, the auto-conversion process does not require any extra fees.
Protecting Users Always Comes First
We hope this post has clarified any confusion or concerns around BUSD’s recent announcement. The crypto space is constantly evolving, and decisions like auto-conversion are made after months of deliberation on what Binance can do to benefit our users. On the exchange side of things, we’ll ensure auto-conversion runs smoothly and that we ensure an industry-leading user experience.
Regarding future plans for BUSD, the team will continue to build and expand BUSD utility in and outside Binance’s ecosystem. Additionally, the BUSD team is in serious discussions with potential partners across the entire spectrum of decentralized, centralized, and traditional finance.
If you’re interested in learning more, you can visit the official BUSD page or check out this list of recommended reading:
Disclaimer: In compliance with MiCA requirements, unauthorized stablecoins are subject to certain restrictions for EEA users. For more information, please click here.