BUSD (Binance USD): The $23 Billion Stablecoin That Regulators Killed in One Day

On February 13, 2023, the New York Department of Financial Services ordered Paxos to stop minting BUSD. The same day, the SEC sent Paxos a Wells notice claiming BUSD was an unregistered security. In that single day, the world's third-largest stablecoin — with $16 billion in circulation and a peak market cap of $23.36 billion — received a death sentence. Within 18 months, BUSD went from powering Binance's entire trading ecosystem to holding $40 million in residual supply. No stablecoin has ever been killed this quickly by regulatory action, and the market's response — a massive shift to USDT that strengthened Tether's dominance — was the exact opposite of what regulators intended.

BUSD (Binance USD) was a fiat-backed stablecoin pegged 1:1 to the US dollar, issued by Paxos Trust Company under NY DFS regulation but branded and distributed by Binance, the world's largest cryptocurrency exchange. Launched September 5, 2019, BUSD grew to become the third-largest stablecoin (behind USDT and USDC) with a peak market cap of $23.36 billion in November 2022. Following a NY DFS order to cease minting in February 2023 and a simultaneous SEC Wells notice, BUSD entered a rapid wind-down. As of April 2026, approximately $40 million in BUSD remains in circulation, with Paxos maintaining 1:1 redemption at face value.

History and Rise

BUSD launched on September 5, 2019 through a partnership between Paxos Trust Company (the regulated issuer) and Binance (the brand and distribution partner). The stablecoin was approved by the NY DFS and launched as an ERC-20 token on Ethereum, backed 1:1 by USD held in Paxos-managed, FDIC-insured bank accounts.

The growth trajectory was remarkable. Starting 2021 at approximately $1 billion in market cap, BUSD reached $14.6 billion by year-end 2021 and peaked at $23.36 billion on November 12, 2022 — ironically, one day after FTX filed for bankruptcy, as investors fled to stablecoins as safe havens. At its peak, BUSD was the second or third largest stablecoin globally, behind USDT and competing with USDC.

Binance aggressively promoted BUSD adoption through zero-fee trading pairs, integration into every Binance product (futures, margin, savings, launchpad), and the September 2022 decision to auto-convert all USDC, USDP, and TUSD deposits into BUSD — effectively forcing BUSD as the default stablecoin on the world's largest exchange.

The Binance-Peg BUSD Problem

BUSD existed in two forms — and the distinction between them became the heart of the controversy.

The "real" BUSD on Ethereum was fully regulated by Paxos under NY DFS oversight, with 1:1 reserve backing in audited bank accounts. Binance-Peg BUSD on BNB Chain was a wrapped version created by Binance itself, using a lock-and-mint mechanism where (in theory) for every Binance-Peg BUSD on BNB Chain, an equivalent amount of real BUSD was locked on Ethereum.

Blockchain analysis revealed that the Binance-Peg BUSD wallet on Ethereum regularly held lower balances than the circulating Binance-Peg BUSD on BNB Chain, with undercollateralization exceeding $1 billion on at least three occasions between 2020 and 2021. The supposed collateral was often BUSD itself — creating circular backing with no true reserve cushion. Investigations also found that Binance converted hundreds of millions in customer USDC reserves into BUSD without knowledge or permission.

This two-tier structure — regulated on Ethereum, unregulated on BNB Chain — meant that billions of dollars in Binance-Peg BUSD circulated outside any regulatory oversight, undermining the "regulated stablecoin" narrative.

The Regulatory Kill Shot: February 13, 2023

On February 13, 2023, two simultaneous regulatory actions ended BUSD.

The NY DFS ordered Paxos to cease minting new BUSD, citing "several unresolved issues related to Paxos' oversight of its relationship with Binance." This was the world's first regulatory action specifically targeting a stablecoin for safety and soundness concerns related to its distribution partner, and the first orderly wind-down of a stablecoin by a regulator. The minting cessation became effective February 21, 2023.

The SEC simultaneously issued Paxos a Wells notice, arguing that BUSD constituted an unregistered security because reserve yields benefited both Paxos and Binance, with some yields passed to Binance users through programs like Binance Earn. Paxos "categorically disagreed" and prepared to litigate. On July 9, 2024, the SEC dropped the enforcement action, influenced by a federal judge's June 28 ruling that BUSD sales did not constitute a securities offering.

The Wind-Down

The collapse from $16 billion to near-zero proceeded quickly. In August 2023, Binance announced the phase-out and offered 1:1 conversion to FDUSD. October 2023 saw the zero-fee conversion deadline expire. In December 2023, Binance ended support and automatically converted remaining balances to FDUSD. By February 2024, the formal Binance redemption deadline passed. As of April 2026, approximately $40 million in BUSD remains, ranking #421 by market cap, with Paxos maintaining 1:1 redemption.

FDUSD (First Digital USD), issued by Hong Kong-based First Digital Labs, replaced BUSD as Binance's primary stablecoin, receiving the same zero-fee trading promotions that had propelled BUSD's growth.

Impact on the Stablecoin Market

BUSD's death had profound and counterintuitive effects on stablecoin market structure.

USDT surged. Tether's market cap grew from $66.2 billion in January 2023 to $97.1 billion by February 2024, with market share jumping from 49% to 71%. At least half of this growth was attributed to BUSD absorption. USDT captured 81% of perpetual futures open interest on centralized exchanges (up from 72% pre-BUSD delisting) and its DEX share increased from 30% to 40%.

USDC initially declined, with supply crashing from $44.2 billion to $25.0 billion during 2023 — driven partly by the March 2023 Silicon Valley Bank crisis and partly by the general loss of confidence in regulated stablecoins following BUSD's regulatory kill.

The net effect: US regulators killed a regulated stablecoin, and the primary beneficiary was Tether — the least regulated major stablecoin. This outcome became a central argument against aggressive stablecoin regulation.

CZ and Binance's Regulatory Reckoning

BUSD's story cannot be separated from Binance's broader regulatory crisis. In June 2023, the SEC filed 13 charges against Binance and CEO Changpeng Zhao (CZ), including operating an unlicensed exchange, misleading investors about market manipulation detection, misusing customer funds, and evading regulatory oversight.

In November 2023, CZ pleaded guilty to violating the Bank Secrecy Act, prioritizing growth over AML compliance. He was sentenced to four months in federal prison (April 2024) and released September 27, 2024. In October 2025, President Trump granted CZ a full pardon.

Paxos settled with NY DFS in August 2025 for $48.5 million ($26.5 million in penalties plus $22 million in compliance investments over three years) over AML deficiencies specifically related to insufficient due diligence on the Binance relationship.

Blockchain Deployments

At its peak, BUSD was deployed across six blockchains. Ethereum hosted the regulated Paxos-issued ERC-20 token. BNB Chain (BEP-20) hosted the Binance-Peg version and represented the majority of trading volume. BNB Beacon Chain carried the BUSD-BD1 token. Polygon and Avalanche were added in September 2022. Tron was integrated in December 2022. Optimism hosted a Binance-Peg version.

DeFi Integrations at Peak

During its peak, BUSD achieved significant DeFi integration. Aave supported BUSD for lending and borrowing. Curve hosted BUSD in stablecoin swap pools. Compound integrated BUSD for lending protocols. Yearn's y-pools used BUSD for yield aggregation across Compound, Aave, and dYdX. PancakeSwap on BNB Chain used BUSD as a primary trading pair for the entire BSC DeFi ecosystem.

All of these integrations have since wound down as BUSD supply approached zero.

Lessons from BUSD's Lifecycle

BUSD's story offers several instructive lessons for the stablecoin industry. Regulatory vulnerability demonstrates that tying a stablecoin to a single exchange creates single-point-of-failure risk — when regulators target the exchange, the stablecoin dies. Two-tier backing systems expose that regulated-on-one-chain, unregulated-on-another structures create opacity, accountability gaps, and fraud risk. Compliance dependency shows that Paxos's failure to independently monitor Binance's handling of BUSD on BNB Chain led to a $48.5 million settlement. Market consolidation risk proves that killing a regulated stablecoin strengthened the dominant unregulated competitor (USDT). Path dependency in stablecoin adoption confirms that once users migrate away, they don't come back — BUSD's network effects evaporated permanently.

FAQ

Yes. Paxos maintains 1:1 redemption at $1 per BUSD without caps or restrictions as of April 2026. Approximately $40 million remains in circulation.

NY DFS cited unresolved issues with Paxos's oversight of its Binance relationship. The SEC argued BUSD was an unregistered security (later dropped). The core issue was that Binance-Peg BUSD on BNB Chain operated outside regulatory oversight while using the "regulated" BUSD brand.

Blockchain analysis showed the Ethereum wallet backing Binance-Peg BUSD was undercollateralized by over $1 billion on multiple occasions. The "backing" was often circular (BUSD backing BUSD) rather than genuine fiat reserves.

FDUSD (First Digital USD), issued by Hong Kong-based First Digital Labs, replaced BUSD as Binance's primary stablecoin with identical zero-fee trading promotions.

The wind-down was orderly — Paxos maintained 1:1 redemption throughout, and Binance offered conversion to FDUSD. No holders lost principal. The damage was to the stablecoin ecosystem's competitive structure, not to individual holders.

Conclusion

BUSD is the most important dead stablecoin in history. Its rise to $23.36 billion proved that exchange distribution is the most powerful force in stablecoin adoption. Its death proved that regulatory risk is the most powerful force in stablecoin destruction. And its aftermath proved that the stablecoin market's response to regulation can produce the exact opposite of regulators' intended outcome — the killing of a regulated stablecoin made an unregulated one stronger. Every stablecoin issuer, every exchange partnership, and every regulatory framework developed since February 2023 carries BUSD's lessons in its DNA.

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