Introduction to BUSD (Binance USD)
BUSD (Binance USD) exists in two primary technical forms:
- ERC-20 BUSD: Issued by Paxos on the Ethereum blockchain
- BEP-20 BUSD: Binance's pegged version via its "Binance-Peg" mechanism, which locks Ethereum-based BUSD to mint equivalent tokens on BNB Chain
While Binance doesn't directly issue ERC-20 BUSD, it partnered with Paxos to offer BEP-20 BUSD, maintaining a 1:1 USD peg. Notably, most circulating BUSD (90% of ~144 billion tokens) exists as BEP-20 tokens.
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Why Paxos-Issued BUSD Was Considered Secure
1. Regulated Issuer Transparency
Paxos holds key credentials:
- NYDFS (New York State Department of Financial Services) licensure
- Partnership with PayPal for crypto services
- Regular third-party audits published publicly
2. Reserve Asset Composition
As of June 2022, BUSD's $17.5B reserves included:
- $10.5B in U.S. Treasury bills
- $6.175B in Treasury reverse repos
- $738M cash deposits
The Paxos-Binance Partnership Termination
In February 2023, the SEC warned Paxos that BUSD might qualify as an unregistered security, though no formal charges were filed. Key developments:
- Paxos immediately ceased BUSD issuance
- Binance announced phasing out BUSD as a primary trading pair
- Existing BUSD remained redeemable at 1:1 value
Potential Market Impacts
Scenario 1: Gradual BUSD Phase-Out
- Binance's shift from BUSD as a base pair
- No new BUSD minting by Paxos
- Natural reduction in circulating supply
Scenario 2: Expanded SEC Crypto Oversight
This action may signal broader stablecoin regulation, potentially affecting:
- Tether (USDT)
- Other algorithmic stablecoins
- Crypto payment systems
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Binance's BUSD Delisting Process
Key dates:
- August 31, 2023: Initial delisting announcement
- February 2024 deadline for BUSD conversions
Options for holders: - Spot trading to other assets
- Flash swap conversions
FAQ Section
Q: Is BUSD still safe to hold in 2024?
A: While redeemable until February 2024, users should convert to other assets as Binance phases out support.
Q: Why did SEC target BUSD specifically?
A: The SEC views it as potentially violating securities laws, though this remains untested in court.
Q: What replaces BUSD on Binance?
A: Binance now emphasizes other stablecoins like USDT, FDUSD, and TUSD for trading pairs.
Q: How transparent were BUSD reserves?
A: Paxos published monthly attestations showing full collateralization with Treasuries and cash.
Conclusion: Regulatory Winds Reshape Stablecoins
The Paxos-Binance split underscores growing U.S. regulatory pressures on crypto. While BUSD maintained strong reserves and transparency, its institutional backing couldn't counter SEC scrutiny—a cautionary tale for stablecoin projects navigating evolving compliance landscapes.