The migration path of Binance's stablecoin landscape

Author: danny; Source: X, @agintender

In the crypto world, what truly determines victory or defeat has never been the code, but rather the game between liquidity, power, and regulation. The rise and fall of BUSD is not a tale of woe for a stablecoin, but a financial war about how exchanges attempt to “unify the world.”

When BUSD was pushed onto the historical stage, it carried not only a narrative of compliance but also Binance's ambition to reshape the stablecoin order through high-pressure tactics—by enforcing exchange rates and merging trading pairs, directly absorbing the liquidity of competitors into its own ledger.

The “automatic conversion” of 2022 was a textbook-level blitz; while the regulatory iron fist on Valentine's Day 2023 caused this seemingly flawless empire to collapse in an instant. The twin BUSD, the shadow-like Binance-Peg, and the misalignment of regulatory boundaries together constitute its Achilles' heel.

But the story does not end here. From FDUSD to BFUSD, and then to United Stables ($U), Binance has not abandoned stablecoins, but has evolved through failure, shifting from a hegemonic unity to an aggregated consumption, even paving the way for the AI economy.

This is an article about stablecoins, and it is also a documentary on how exchanges attempt to tame the market, only to be backfired by regulation.

Chapter One: Passion and Hegemony - The “Unification” History of BUSD

The story of BUSD is not just about the rise and fall of a compliant product, but also a narrative about how exchanges attempt to unify market liquidity through administrative means, a form of “imperial strategy.”

1.1 Recognizing in the Early Stages: The Dinner Meeting Between CZ and Richmond Teo

In 2019, the stablecoin market was the Wild West for Tether. At this time, Richmond Teo, as the co-founder and CEO of Paxos in the Asia-Pacific region, became a key bridge connecting the regulatory authorities in New York with the Asian crypto giants.

There is a widely circulated rumor in the industry that seems false at first glance, but many are willing to believe it: On the eve of the release of BUSD, shortly after Paxos published a blog post celebrating its compliance status, Rich Teo and CZ were spotted dining together at a high-end restaurant overseas. After that dinner, the situation changed dramatically: Huobi's HUSD gradually lost its favor, and Paxos established its position as the “full custodian” of BUSD. CZ handed over Binance's liquidity backing to Teo, while Teo used the “green list” license from the New York State Department of Financial Services (NYDFS) to give Binance a bulletproof vest.

1.2 Blood Boiling Moment: The “Exchange Rate Unification Blitz” of 2022

The most “heated” and controversial moment in BUSD's history occurred in September 2022. In a bid to challenge the dominance of USDT and USDC, Binance launched a stunning “liquidity unification” initiative.

Binance announced that the existing user balances and new deposits of USDC, USDP (Paxos Dollar), and TUSD (TrueUSD) will be automatically converted to BUSD at a 1:1 ratio.

Binance has directly removed the spot trading pairs for USDC, USDP, and TUSD. This means that in Binance, the largest liquidity pool in the world, users can recharge USDC, but can only see and use BUSD on their accounts. (However, when withdrawing, they can withdraw USDT, USDC))

This is a blatant conspiracy. By forcibly merging liquidity, BUSD instantly gained the trading depth that originally belonged to its competitors. Circle's ( USDC issuer's CEO Jeremy Allaire stated on Twitter that this helps increase dollar liquidity, but in reality, USDC's brand presence in the Binance ecosystem has been forcibly erased, becoming the “fuel” for BUSD.

This radical strategy has had significant effects. The market capitalization of BUSD soared to a historical peak of $23 billion in November 2022, once occupying half of the trading volume on centralized exchanges. That was the most glorious moment for BUSD and the peak of Binance's ambition to establish an independent financial closed loop.

) 1.3 Regulatory “Valentine's Day Massacre”

However, this “unified” situation came to an abrupt end on February 13, 2023. The NYDFS pointed out that the “Binance-Peg BUSD” issued by Binance (a shadow version issued for use on the BNB Chain) exceeded the regulatory scope of Paxos, ordering a halt to its minting. The market capitalization of BUSD fell from a peak of $23 billion to zero, and the empire built through “automatic conversions” collapsed under the regulatory iron fist.

For Teo, this is undoubtedly a heavy blow. As an architect, he watched his “child” that he nurtured alongside CZ be forcibly euthanized. Paxos was forced to announce the severance of its relationship with Binance, and Teo subsequently entered a low-profile period that lasted more than a year.

However, the story is not over. Rich Teo's high-profile return in the Trump family's crypto project World Liberty Financial ###WLFI( is seen as a continuation of his story with CZ. Teo is leveraging new political capital to build a new compliant stablecoin (USD1), while WLFI heavily relies on the liquidity of the BNB Chain. This seems to be a way for the two old friends to continue their “liquidity pact” in the regulatory cracks, through a more subtle and circuitous approach.

Chapter 2: Achilles' Heel - “Twin Brothers” and the Thunder of Regulation

) 2.1 Critical Structural Flaw: Binance-Peg BUSD

Behind the glory of BUSD lies a structural hazard that ultimately leads to its destruction. In fact, there are two distinctly different forms of BUSD circulating in the market:

BUSD (ERC-20) issued by Paxos: This is the true “compliant BUSD”, issued by Paxos on the Ethereum blockchain, directly regulated by NYDFS, with reserves strictly held in segregated accounts in the United States.

Binance-Peg BUSD (BEP-20 etc.): This is a “wrapped token” created by Binance to expand its ecosystem to non-Ethereum chains (such as BNB Chain, Polygon, Avalanche).

Theoretically, the mechanism of Binance-Peg BUSD is as follows: Binance locks 1 Paxos BUSD on Ethereum and then mints 1 Binance-Peg BUSD on the BNB Chain. However, this “bridging” mechanism relies entirely on Binance's internal operations rather than direct management by Paxos. The regulatory authority of NYDFS and the “green list” only cover Paxos BUSD on Ethereum, not Binance-Peg BUSD.

The outbreak of the problem lies in the disconnect in reserve management. Investigations by media outlets such as Bloomberg revealed that during certain periods from 2020 to 2021, wallets supporting Binance-Peg BUSD experienced severe “under-collateralization,” with a gap reaching as high as $1 billion. Although Binance claimed this was merely an “operational delay” and not a solvency issue, it directly violated the bottom line of regulatory agencies: a stablecoin operating under the banner of “NYDFS regulation” had, in fact, given rise to an unregulated and poorly managed “shadow version” of its reserves.

2.2 The Regulatory Hammer: The “Valentine's Day Massacre” of 2023

The fate of BUSD came to an abrupt end on February 13, 2023. On this day, the New York State Department of Financial Services (NYDFS) issued an administrative order requiring Paxos to immediately stop minting new BUSD tokens.

The reasons from the regulatory agency are very clear and fatal: Paxos failed to effectively supervise its relationship with Binance, particularly regarding the issuance of Binance-Peg BUSD, which allowed compliant BUSD to be used as a backing tool for unauthorized derivatives. The NYDFS clearly stated: “While we authorized BUSD on Ethereum, we never authorized Binance-Peg BUSD.”

At the same time, the U.S. Securities and Exchange Commission (SEC) issued a Wells Notice to Paxos, accusing BUSD of being an “unregistered security.” The logic behind this accusation is that BUSD is not just a payment tool; it is part of Binance's ecosystem profit mechanism (through products like Earn), and therefore may constitute an investment contract. Although the SEC later dropped this specific investigation in July 2024, the double blow at that time was already fatal.

2.3 Fall and Retreat

“Stop minting” means that BUSD has become a “zombie token” that can only be redeemed and cannot be minted further. For an asset intended to serve as a liquidity medium, this is a death sentence. With Paxos announcing the termination of its partnership with Binance, the market value of BUSD began to plummet. Within just a few days, hundreds of millions of dollars in funds flowed out; within a year, the market value shrank by more than 90%.

Binance was forced to undergo a painful retreat:

Delisted Trading Pairs: Gradually removing BUSD's spot and leveraged trading pairs.

Stop as Margin: Announce that BUSD will no longer be used as a margin asset for contract trading.

Forced Conversion: Urging users to convert BUSD to other stablecoins (such as FDUSD).

The once “passionate” stablecoin empire collapsed under the iron fist of regulation. Binance lost a trump card in stablecoins and was forced to rethink its stablecoin strategy.

Chapter 3: The Transition of the Vacuum Period and the Emergence of FDUSD and BFUSD

In the early days after BUSD collapsed, Binance faced the unwillingness of losing its “own stablecoin” and questioned why it should hand over this revenue to others. To fill this gap, Binance quickly supported First Digital USD ###FDUSD(. This is a stablecoin issued by Hong Kong's First Digital Labs.

Binance's support for FDUSD almost replicates the strategy it used to support BUSD back in the day:

1. Launch a “zero fee” promotion for the FDUSD trading pair.
2. Provide a 1:1 lossless conversion from BUSD to FDUSD.
3. Add FDUSD as a mining option in Launchpool.

However, FDUSD is more like a strategic buffer. While it addresses the relocation of compliance (from the United States to Hong Kong), it remains a traditional, centralized stablecoin issued by a third party. It does not solve the core issue: if regulators target the issuer again, Binance remains passive. Furthermore, in an environment with dollar interest rates as high as 5%, the model of FDUSD (and USDT/USDC) allows the issuers to earn all the interest while users gain nothing. This has become outdated in the DeFi era.

The era of new stablecoins has also passed. The original main use case of FDUSD was participating in Launchpool, but with the sharp decline of Launchpool activities, the utility of FDUSD has also been continuously reduced. Additionally, a scandal involving Justin Sun that broke in April 2025 has posed challenges to the growth of FDUSD.

In order to counter the competitors' “Contract Position Income” feature, BFUSD )Binance Futures USD( was born.

Binance has repeatedly emphasized that BFUSD is a “reward-type margin asset” and not a true stablecoin.

Users holding BFUSD can earn an APY of 4-5%. The yield comes from the “Delta Hedge” strategy.

BFUSD cannot be withdrawn and can only be used as margin in Binance's contract account. It is Binance's “internal circulation” weapon, ensuring that users do not transfer funds out of the exchange even in a bear market. It is an asset appreciation financial product disguised as a “stablecoin.” Although BFUSD has also achieved impressive results (currently with an issuance of 1.8 billion), Binance knows that a stablecoin that cannot leave the exchange can only be a joy bean.

Chapter Four: United Stables )$U( —— The “Surprises” and New Situations It Brings

If BUSD is the “exclusive” hegemony and BFUSD is the “internal” defense, then the recently released United Stables )$U( brings a completely different surprise: “compatibility” and “the future.”

) 4.1 No longer “reinventing the wheel”, but rather “devouring the wheel”

Unlike the period when BUSD attempted to eliminate USDC, ### adopts the strategy of “Meta-Stablecoin” $U .

The backing of $U is a basket of assets. According to the information released on December 18, 2025, its reserves include USDT, USDC, and USD1.

Continuing the unified strategy of BUSD, whether you are USDC, USDT, USD1, or USD, they all become the underlying assets of $U, but are presented as U externally. By absorbing the liquidity-disrupted USDT and USDC into the $U reserve pool, United Stables aims to algorithmically “unify” these assets on the BNB Chain, issuing the liquidity-best $U, which may be more comparable to curveUSD. U is the unified name for these stablecoins, but users can choose other stablecoins when withdrawing/redeeming.

This is a higher-dimensional strike – since you dare not use the dollars I issued, I will package the dollars you dare to use into my token.

( 4.2 Surprise Two: The grass snake leaves its trace, Trump concept coin USD1 enters the market

The strategic surprise of United Stables is that it has included USD1 in its reserve assets. (This is the stablecoin issued by the Trump family's crypto project World Liberty Financial )WLFI###, and the head of the stablecoin project is none other than Richmond Teo, the former architect of BUSD. I wonder if there was any consideration for this connection?)

After all, USD1 is significantly smaller in scale compared to USDC and USDT, which makes this support appear more like a political gesture from the outside. It is foreseeable that United Stables provides a substantial use case for USD1 (as the underlying of $U), after all, the current use case for USD1 is still relatively limited.

( 4.3 Surprise Three: Currency Born for AI )The AI Economy###

United Stables clearly states that $U is “designed for the AI economy.”

As stated in United Stables' tweet

EIP-3009 ( no Gas authorization ): allows “no Gas transfer”. This means that future AI agents (Bots) do not need to hold BNB or ETH as transaction fees when making high-frequency micropayments. This addresses the biggest pain point in machine-to-machine (M2M) economy.

x402 Delegated Execution: A standard that allows smart contracts to automatically execute fund allocation based on specific conditions. This paves the way for future “autonomous hedge funds” or “supply chain automated payment AI.”

As of the time of publication: U has a circulation of 55m. Is it a case of accumulation leading to a breakthrough, or is it just a fleeting moment?

Epilogue: How far have we come from “Despotism” to “Great Harmony”?

Looking back at the evolution from BUSD to United Stables, we have witnessed an amazing evolution of strategic thinking:

BUSD Era (Dominance): Utilizing the monopoly position of the exchange, forcibly eliminating competitors through “automatic conversion” in pursuit of absolute market share. Although this approach is “passionate,” it can easily provoke joint retaliation from regulators and competitors.

United Stables Era (Datong): Learn from lessons and adopt the “aggregation” strategy. Acknowledge the status of USDT/USDC, but use $U as the underlying asset and create a “super application” on top.

Prepare for AI payments in advance, breaking away from the current stock game of human traders, to seize the incremental market of the future machine economy.

$U is not just a new aggregated stablecoin; it is also an attempt to redefine the game rules of stablecoins in a more sophisticated, nuanced, and technically forward-looking way after BUSD was knocked down by regulation. One can only say that risks and opportunities coexist, so let’s wait and see!