Thread: Analysis of💰BUSD & Paxos operating model
1.1 BUSD is a stablecoin operating under the mechanism of 100% reserve in fiat currency and equivalent assets. BUSD is a collaboration product between Paxos company and the leading cryptocurrency exchange today Binance.
1.2. There is probably no need to introduce much about Binance, but the name Paxos will surely have many people who have not heard of it. Paxos builds blockchain solutions for the encryption, custody, trading, and settlement of assets for enterprise partners.
1.3 BUSD is not Paxos' first stablecoin. Before that, they had PAX Gold ( PAXG) or PAX Dollar ( USDP). Paxos has raised 500 million USD in capital from investors such as Mithril Capital, PayPal Ventures… In addition, Paxos' customers are from Mastercard, Paypal, Binance ☺️
2. Paxos milestones: - 2012: Launched the itBit exchange. - 2018: Issued the world's first regulated stablecoin, PAX (now USDP) - 2019: Release: PAX Gold
- 2019: Licensed by the SEC - 2021: First crypto company gets preliminary approval for National Trust Bank charter.
3.1. Paxos includes 5 main products: brokerage, Paxos Gold, USDP, custody and iBit exchange.
1⃣ Brokers: The Paxos brokerage product gives other companies the ability to buy, sell, hold, or deposit cryptocurrencies within their own apps.
3.2. The company that adapts to cryptocurrencies will be more popular with customers, then users tend to invest and hold more crypto. Currently, Paxos brokerage service is supporting popular assets such as: BTC ETH BCH MATIC LTC LINK UNI AAVE PAXG USDP.
2⃣Paxos Gold: PAXG is a gold-backed token, represents one ounce of London Good Delivery gold.
This is probably the most commonly produced type of bullion. According to the rules of the London Bullion Association (LBMA), these gold bars are the "gold standard" of the world.
3.4 Users who own PAXG have the right to exchange to gold with the supervision of Paxos Trust. Since PAXG is tied to physical gold, token value is tied to the real-time market value of gold.
PAXG helps users buy & sell gold as easily as regular tokens, without going to the store
3.5 3⃣USDP: Previously named Paxos Standard (PAX), then changed Pax Dollar (USDP) in 2021. USDP works similar to BUSD when backed by fiat currency, USD. Users can redeem 1:1 ratio.
Difference USDP & BUSD: - USDP is made by Paxos. - BUSD is a partnership of Paxos and Binance.
3.6 4⃣Custody: service in which a financial institution holds assets on behalf of a client. Similarly, Paxos oversees crypto assets like Bitcoin, physical assets like gold, and other assets like stocks.
In custody, assets are kept in a 100% cold wallet.
3.7 5⃣itBit: the exchange of Paxos. Unlike Binance, OKX… itBit is a private exchange for Paxos users because itBit does not have its own domain name. To access itBit, users need a Paxos account. The number of trading pairs on itBit is quite limited, only a few popular pairs.
4. Operating model of BUSD & Paxos About Paxos, not only BUSD, the main products are aimed at attracting many users: - Brokers make easy for the traditional community to use crypto. - Paxos Gold gives users convenient exposure to gold. - USDP, a means of holding value in crypto.
5. There is no fee to redeem and mint BUSD. But other activities are paid, even mint and redeem USDP ➡️ revenue of Paxos.
Specifically, with the iBit exchange, based on the transaction volume, users can reduce transaction fees as follows (a basic point - bp is 1/100 of 1%):
6. Or another example, when buying and selling PAXG on a Paxos account (the third platform does not have this fee), you need to pay a small fee as follows:
8.1. These investments are all US Treasury Bill, so they are guaranteed in terms of prestige. So how is this part different from the 4% US Treasury Bill in reserves? That is the expiration time. Bonds in the cash equivalent section have a maturity of 3 months.
8.2. If you have read the article about the operating model of USDT and USDC, you will see that their reserves are somewhat different compared to BUSD. These features are: - Amount of fiat money. - Investments.
9.1. The fiat currency of the BUSD reserve is the most when comparing all three. In addition, BUSD is 96% Reserve of USDT and USDC is more diversified than BUSD when it has many investment areas. It can be metals (gold, silver...), other companies, besides government bonds.
9.2. Overall, when comparing stablecoin value retention, USDT and USDC still guarantee redemption. However, given the large amount of cash, as well as only bonds, BUSD seems to have an advantage over redeeming stablecoins for fiat currency, since the asset is easy to liquidate.
10. Similar to USDC, there is no fee for users to mint or redeem BUSD. Therefore, the use of BUSD for Paxos is the same as for USDC and Circle.
That is the network effect. As users use BUSD more and more, Paxos' role in crypto is also growing.
11.1. The network effect of USDT, USDC compared to BUSD for the company behind can be considered equivalent. However, Paxos with BUSD has an advantage because it is a partnership product with Binance.
11.2. Binance has grown tremendously since its inception in 2017 and took 6 months to become the largest trading volume in the world. The man behind Binance is CZ, known for his smart moves in building Binance. BUSD is a stablecoin under the Binance brand.
12.1. The future of BUSD Unlike USDT and USDC, BUSD so far has not had any scandals, affecting its development.
BUSD is currently the top 3 stablecoin by market capitalization after USDT and USDC. Part of that is probably due to the massive growth of BNBChain in 2021.
12.2. Currently, over 1,000 trading pairs for USDT & USDC in many different exchanges. But BUSD is only seen mostly in trading pairs on Binance & PancakeSwap - both of which are part of the Binance ecosystem. But BUSD still has a long way to go to catch up with USDT & USDC.
13.1. Next, to compete with external competitors, BUSD needs to limit the development of USDP "house chickens". This is more a Paxos problem than BUSD because USDP is their product. So it is very difficult for both of them to develop together when going in the same niche.
13.2. Also, similar to USDT and USDC, BUSD needs to keep an eye on Central Bank Digital Currency (CBDC). Since the government is behind the CBDC, they can introduce laws to “clear the way” when the CBDC comes out. (end)This post is based on this twitter thread.