Tether vs Binance USD

Tether’s USDT and Binance’s BUSD are major stablecoins. The global crypto market is dominated by trading pairs denominated in these assets.

In this Tether vs Binance USD review, we’ll explain why these stablecoins are so popular, discuss their differences, and list the risks and benefits of trading them.

The History of Tether (USDT) and Binance USD Coin (BUSD)

USDT, the largest stablecoin in the market, is one of the most controversial digital assets in the crypto sphere. The coin was launched in 2014 by Tether Holdings Ltd. and became the first and biggest stablecoin in the market. 

When USDT started trading on the Bitfinex exchange, there was some speculation that Bitfinex owned the asset secretly. In 2017, the rumors were proven correct, with financial experts claiming that Bitfinex had used USDT to manipulate the price of Bitcoin. 

The ensuing investigation revealed that Tether had loaned over 900 million dollars to Bitfinex from its reserves, leaving USDT in serious trouble. Tether was only 74% backed, according to a statement by the company’s lawyer. Bitfinex and Tether paid over 50 million dollars in fines to settle with the courts.

Tether hasn’t conducted an official audit of their reserves yet.

But Bitfinex isn’t the only exchange to have a problematic stablecoin of its own. As you can tell from the name, Binance USD was launched by crypto giant Binance, and it’s the third-largest stablecoin in the market.

BUSD has an interesting and controversial history. In 2019, Binance announced it was developing BUSD in partnership with a New York-based regulated fintech company named Paxos. The coin was built on the Ethereum blockchain and launched in 2019. Since Paxos is a highly regulated company, nobody questioned the stability of BUSD reserves.

However, once regulators approved the launch of BUSD on Ethereum, Binance also launched the product on Binance Smart Chain, its own blockchain project. And while everyone thought Paxos continued to issue BUSD, it became apparent that wasn’t true in 2022.

Paxos released a statement in 2022, clarifying that the company only minted Ethereum-based BUSD and had no oversight over Binance-pegged BUSD on BNB Smart Chain. 

In 2023, DataFinnovation released a detailed report that showed Binance hadn’t been honest regarding its BUSD reserves, and the asset had failed to maintain its peg for most of 2020. Binance issued unbacked coins to the market, and the gap between its reserves and BUSD reached over 1 billion USD in three separate incidents during 2020.

Binance admitted the report’s validity but argued that the asset is fully backed as of 2023. Since neither Binance nor Binance pegged-BUSD is audited, there is no way of knowing whether the company is telling the truth. 

You can learn more about the histories of Binance and Bitfinex in our platform reviews.

How Do Tether and Binance USD Work?

To understand how USDT and BUSD work, you must understand the difference between cryptocurrencies and stablecoins.

Most retail traders invest in cryptocurrencies as a way to increase their wealth. Crypto is notoriously volatile, and people can make or break the bank with crypto by buying low and selling high. 

But that’s not the case with stablecoins. Their whole point is always to be worth 1 USD, no matter what. Why?

Since cryptocurrencies like BTC or ETH aren’t backed by external assets, their value can ricochet depending on market speculation. Stablecoins are the opposite: they are backed by external assets like bonds, cash, and other reserves to protect their 1:1 peg.

Stablecoins like USDT and BUSD mitigate the risk of price volatility. You can purchase 100 USD worth of USDT or BUSD and sell it for 100 USD a month or a year later for the same price. Price stability ensures a stable exchange rate in a market famous for its instability. 

In other words, stablecoins are the bridge between fiat currencies and cryptocurrencies. You can’t buy or sell most altcoins with cash, but you can trade them with stablecoins and cash out.

Thus, stablecoins help investors enter and exit the market easily. This is why most crypto trading is denominated in stablecoins.

However, that makes stablecoins a double-edged sword: While the crypto market depends on stablecoins for liquidity, a stablecoin that can’t protect its peg can wipe off billions from the market.

Unfortunately, we know today that both USDT and BUSD had troubles with their reserves in the past. Luckily, neither coin lost its peg “officially,” meaning they managed to hide their money troubles from the investors and survive. 

Now that you understand how stablecoins work, let’s move on to our actual review and compare BUSD and USDT.

What Are the Main Use Cases of USDT and BUSD?

Stablecoins have three main use cases. Firstly, you can use USDT and BUSD to trade most cryptocurrencies. Fiat-to-crypto trades have become very regulated in recent years, and there are limited markets for those pairs. USDT and BUSD allow you to access most altcoins you can’t trade otherwise.

Secondly, they facilitate crypto payments. Prices denominated in USDT or BUSD are impervious to volatile crypto prices. 

Finally, traders can lend their stablecoins to earn interest on their coins.

Please note that most decentralized finance protocols are unregulated and may collapse due to unsustainable business practices. Many, like notorious Celsius, employ Ponzi schemes to offer high returns on stablecoins. 

USDT and BUSD Price History

USDT Price History

1 USDT is always worth $1, but there can be slight price fluctuations when a lot of people buy or sell the asset in a short period. The price usually quickly recovers to its $1 fixed price. 

BUSD Price History

1 BUSD is always worth $1, but there can be slight price fluctuations when a lot of people buy or sell the asset in a short period. The price usually quickly recovers to its $1 fixed price. 

Tether and Binance USD Market Cap

USDT Market Cap

USDT is the largest stablecoin and the third-largest cryptocurrency by market capitalization after Bitcoin and Ethereum.

As of January 2023, there are over 60 billion USDT tokens in circulation. The asset lost some ground in market cap following FTX’s bankruptcy.

The asset doesn’t have a set total supply. Tether issues USDT based on the demand for the asset. Total supply changes depending on the market demand. If the demand increases, Tether creates more tokens, and when people cash out or convert USDT to other coins, the company burns the surplus tokens.

In theory, companies that issue stablecoins must have equal reserves to back their assets. In practice, they can mint as many stablecoins as they want, but the token may crash if people try to cash out all at once.

USDT is available on most major exchanges and is supported by many blockchain networks, including Ethereum, Algorand, Hedera, Tron, Solana, and more.

BUSD Market Cap

BUSD is the third-largest stablecoin and seventh-largest cryptocurrency by market capitalization. As of January 2023, there is a circulating supply of 16 billion BUSD.

BUSD doesn’t have a total supply, and Binance and Paxos can issue BUSD based on the demand for the asset. Like with USDT, total supply varies depending on the market demand. 

Binance should only create new tokens that are backed by their reserves, but the company has complete control over the process.

BUSD is available on most major exchanges and is supported by many blockchain networks, including Ethereum, Algorand, Hedera, Tron, Solana, and more.

Main Similarities Between Tether and USD Coin

USDT and BUSD are USD-backed stablecoins issued by cryptocurrency exchanges. They don’t have capped supplies since the issuing institutions can create more coins if there’s a higher demand. 

A single USDT and BUSD must be worth 1 USD all the time. You can find BUSD and USDT on most cryptocurrency exchanges. 

You can use these stablecoins to make and accept crypto payments, trade Bitcoin and altcoins, and borrow and lend collateral for trades.

Both digital assets are available on popular centralized and decentralized exchanges. And even though Binance delisted many stablecoins, it still supports USDT.

Lack of Transparency 

Both Binance and Tether have come under fire for concealing that they didn’t fully back their stablecoins. 

US authorities revealed that Tether didn’t have the reserves to back their token in 2021. The Commodity Futures Trading Commission ordered the company to publish a full audit, but the company hasn’t provided one yet.

Journalists revealed that BUSD also didn’t have the reserves to back its token, and Binance has admitted it under-collateralized the asset in the past. 

Tether and Binance claim their companies have the reserves to back up the tokens, but neither stablecoin’s reserves have been fully audited by an independent company.

Tether publishes daily updates regarding its reserves, but these updates aren’t backed by proof. Similarly, Binance publishes monthly reports regarding the reserves without proof.

Both companies also have been accused of manipulating the price of Bitcoin by minting unbacked stablecoins and using them to inflate the market.

Main Differences Between Tether and USD Coin

The biggest difference between USDT and BUSD is in their reach. USDT is the biggest stablecoin by market cap, while BUSD is only the third. 

Another major difference is in the way you can earn interest on them. Many crypto exchanges and DeFi protocols let you lend your stablecoins for a return, so you can lend or stake both USDT and BUSD and earn passive income.

Generally speaking, staking and lending USDT is easier. Most platforms offer a Tether staking rewards program, including Kraken (1.6%) and Binance (%0.6). Naturally, you can stake BUSD on Binance for a favorable rate (%0.6).

Exchanges like OKX, Crypto.com, and Blockchain.com, and several other lending protocols like Aave and Compound allow you to loan USDT with 2% to 10% APY. 

BUSD loans are offered by fewer lending protocols, among them Finblox and Swissborg.

Tether vs Binance USD: Risks Associated With USDT and BUSD

Risk of Losing Their Peg

The biggest risk associated with USDC and USDT is the possibility of these stablecoins losing their peg.

These assets have value because they are supposed to be backed by external reserves. If the reserves are less than the number of stablecoins in circulation, a big enough bank run can trigger the collapse of these coins and, in return, the whole crypto market.

A huge percentage of crypto trading is denominated in stablecoins such as USDT, USDC, and BUSD. It’s not just retail traders who trade these coins. Many DeFi providers, crypto exchanges, and crypto investment companies depend on stablecoins to keep operating.

If these stablecoins fail, the ensuing crash will not only affect individual USDT or BUSD holders. Think about how the fall of FTX or Three Arrows Capital created a butterfly effect that triggered other bankruptcies.

Since neither Tether nor Binance offers full audits for their stablecoin reserves, we don’t know if these assets are properly backed by real money.

Legal and Financial Risks

Overall, Tether is a completely centralized operation run by a team who has consistently deceived its customers ever since 2015, when they promised an official audit that never took place. 

The company has troubles with banks and government authorities, so there are legal and financial risks of failure. On the other hand, Tether still has a very strong market presence, and USDT managed to maintain its peg during the controversy.

BUSD’s issuer, Binance, is infamous for avoiding or stepping around regulations. The company has been accused of ​​hiding its liabilities, lying about its reserves, and trading against its customers.

In 2023, it was revealed that Binance didn’t have the reserves to back up BUSD at certain times during the past years. If there had been a strong bank run on BUSD back then, BUSD would have crashed, and people would have tanked the crypto prices by withdrawing or selling their assets from all major exchanges as quickly as possible.

Binance doesn’t release information regarding its finances, and while CEO ​​Changpeng Zhao is very active on Twitter, he rarely addresses the controversies surrounding the exchange in a meaningful way. Overall, it shows that the company has no plans to take steps to ensure transparency in its operations.

Where Can You Buy USDT and BUSD?

You can purchase USDT and BUSD on most crypto exchanges. Crypto.com recently delisted USDT for Canadian customers due to regulatory issues.

You can generally find these assets on any cryptocurrency exchange and purchase them via bank transfer, credit and debit cards, or third-party payment providers like Apple Pay and Google Pay.

How Can You Exchange USDT for BUSD?

You can exchange USDT for BUSD on most cryptocurrency exchanges. All you have to do is to check whether the crypto exchange you choose lists both coins. 

Binance recently delisted many stablecoins, including USDC, but USDT is still supported.

Future Plans for Tether and USD Coin

It’s hard to tell what is in the future for USDT and BUSD. Stablecoins have a huge impact on both crypto markets and traditional finance since they bridge fiat currencies to cryptocurrencies.

The last few years revealed a lot of issues with stablecoins and their issuers. Both Tether and Binance have pledged to become more transparent following the controversies regarding their businesses, but it remains to be seen whether they will follow through.

In the meantime, authorities plan to regulate stablecoins more strictly in 2023. Canada Ontario has already taken steps to regulate stablecoins, resulting in Crypto.com delisting USDT for Canadian customers.

Stablecoins are a huge market: they have been called too big to fail by industry leaders, but whether they can survive regulator scrutiny remains to be seen.