In recent years, stablecoins have become a debated topic in not only the crypto arena but the entire financial sector. While some believe that stablecoins are the future of finance, others see them as a bubble bound to burst. Either way, it is impossible to refute the immense popularity that they currently have. Two of the largest stablecoins are Tether (USDT) and Binance USD (BUSD).
What Is a Stablecoin?
Stablecoins are cryptocurrencies that are pegged to another currency in some way. Most of the time, they are pegged to currencies such as the USD or the CAD. As of right now, stablecoins are pegged to other currencies in two main ways.
The first and most common way stablecoins are pegged is through off-chain collateralization. This method of keeping the price stable involves backing with physical dollars. For example, a stablecoin pegged to USD could be backed by the same amount of USD in a bank account. So, for every stablecoin in circulation, there is $1 somewhere to give that token value. This method is often regarded as the safest way to peg stablecoins.
The other way to peg stablecoins has gotten lots of attention in recent weeks after the failure of UST. This method of pegging uses an algorithm to keep the price stable. For example, the algorithm could contract or expand the supply to keep the price stable. However, many are wary of this method after TerraUSD (UST) failed when the algorithm could not handle increased volume.
Why Do People Use Stablecoins?
Stablecoins could provide a wealth of use cases in the future. Right now, they are mainly used as a store of value and a payment method on the blockchain.
Stablecoins have become increasingly popular as they provide a steady price, which contrasts with the extremely volatile crypto market. Additionally, they can be used in many places to swap, buy and sell tokens.
Additionally, governments around the world have been experimenting with the integration of stablecoins into their financial systems. Most notably, the French government experimented with the use of stablecoins in the bond and lending markets in late 2021. If the popularity continues to rise, more governments may begin to integrate stablecoins.
What is Tether (USDT)?
USDT, released in 2014, was one of the first stablecoins. The founding team saw issues with both high volatility and a disconnect between fiat currencies and cryptocurrencies. As such, they developed USDT and released it onto the markets.
USDT is the largest stablecoin, with a market cap of over $70 billion.
Features of Tether (USDT)
Tether uses reserves to keep the price of USDT stable and maintain its price of $1. It is backed with a collection of cash, treasury bills, fiduciary deposits and a handful of other financial instruments. Whenever a new token is minted, there is $1 of value held to back it in Tether’s reserves.
The main advantage of using Tether is the amount of tokens it can be traded for. USDT can be exchanged for thousands of cryptocurrencies. If you own USDT, you can exchange it for most cryptocurrencies available. This feature gives the token versatility; you only need USDT to trade countless other assets. Additionally, the token can be used on several blockchains, such as Bitcoin, Ethereum and Algorand, as well as others. In fact, a majority of all trades on the Bitcoin network are done through USDT.
How to buy Tether (USDT)
Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.
As Tether is the most popular stablecoin, it can be found on most crypto trading platforms. However, Coinbase Global Inc. (NASDAQ: COIN), Gemini, FTX and Voyager are among the best. These platforms are known for their ease of use, security, and low fees.
To buy Tether, you first have to open an account on one of these exchanges. From there, you will have to provide basic personal information. You can then fund your account using a bank or ACH transfer and then purchase your USDT.
What is Binance USD (BUSD)?
Binance USD was created in 2019 as a collaboration with Binance and Paxos. The two companies saw a need for a more secure stablecoin and decided to create their own.
BUSD currently ranks as the third largest stablecoin with a market cap of just over $18 billion.
Features of Binance USD (BUSD)
Similar to Tether, Binance USD uses reserves to keep the price extremely close to $1.00. However, BUSD is backed with cash and treasury bills, while USDT is backed by several other assets. Overall, BUSD and USDT are backed in similar ways.
The main advantage of using BUSD is the security that is involved with the token. The stablecoin is regulated by the New York State Department of Financial Services. Additionally, it undergoes audits every month, which can be viewed by anyone. This added security and safety is growing increasingly more important as TerraUSD failed. This experience may cause more people to look towards a more secure stablecoin for future use.
BUSD is available for use on the Ethereum and Binance chains, which could be useful for those looking to trade other tokens on the Binance Smart Chain, as USDT cannot be used on that chain unless wrapped into B-USDT.
How to Buy Binance USD (BUSD)
Sum of median estimated savings and rewards earned, per user in 2021 across multiple Coinbase programs (excluding sweepstakes). This amount includes fee waivers from Coinbase One (excluding the subscription cost), rewards from Coinbase Card, and staking rewards. ³Crypto rewards is an optional Coinbase offer. Upon purchase of USDC, you will be automatically opted in to rewards. If you’d like to opt out or learn more about rewards, you can click here. The rewards rate is subject to change and can vary by region. Customers will be able to see the latest applicable rates directly within their accounts.
BUSD is another popular stablecoin that is available on multiple prominent exchanges. However, Coinbase and Binance are the top two exchanges.
Buying BUSD is similar to buying USDT. Create an account, fund it and then purchase the token.
Should I use Tether (USDT) or Binance USD (BUSD)?
The choice between USDT and BUSD ultimately comes down to your goals for holding the stablecoins. If you are looking for a token that can be used on several exchanges and thousands of cryptocurrencies, then USDT may be the token for you.
Conversely, if you are willing to sacrifice a bit of usability for increased security, then BUSD may be the way to go.
Either way, both tokens are great options for those looking to explore the stablecoin space.
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About Caden Pok
Caden has been involved with crypto since 2018, when he began investing, trading, and mining tokens. He took part in undergraduate research studying cryptoeconomics at the University of Michigan, where he will graduate Phi Beta Kappa with a bachelor’s in economics in 2025. He is experienced with DeFi technology and multiple blockchains, currently investing in Ethereum and Bitcoin.