In the crypto world, what truly determines victory or defeat is never code, but the interplay between liquidity, power, and regulation. The rise and fall of BUSD is not merely the tragic history of a stablecoin, but a financial war about how exchanges attempt to "unify the world."
When BUSD was introduced to the world, it carried not only a compliance narrative, but also Binance's ambition to reshape the stablecoin order through high-pressure tactics—by forcing exchange rates and merging trading pairs, it directly swallowed the depth of its competitors into its own ledger.
The "automatic conversion" in 2022 was a textbook example of a blitzkrieg; while the regulatory iron fist of Valentine's Day 2023 caused this seemingly impenetrable empire to collapse instantly. The twin BUSD, the shadowy Binance-Peg, and the misalignment of regulatory boundaries together constitute its Achilles' heel.
But the story doesn't end there.
From FDUSD to BFUSD, and then to United Stables ($U), Binance has not given up on stablecoins. Instead, it has evolved through failures, shifting from a hegemonic unification to an aggregate-based absorption, and even paving the way for the AI economy.
This is not only an article about stablecoins, but also a chronicle of how exchanges attempted to tame the market and were ultimately retaliated against by regulators.
Chapter 1: Passion and Hegemony – The Story of BUSD's "Unification"
The story of BUSD is not just about the rise and fall of compliant products, but also about how exchanges attempt to unify market liquidity through administrative means – a classic example of "imperial tactics."
1.1 Acquaintance from humble beginnings: A dinner between CZ and Richmond Teo
In 2019, the stablecoin market was Tether's Wild West. At that time, Richmond Teo, as the co-founder and CEO of Paxos Asia, became a key bridge connecting New York regulators with Asian crypto giants.
A widely circulated but obviously false rumor in the industry goes unnoticed: Shortly before the launch of BUSD, after Paxos posted a blog celebrating its compliance status, Rich Teo and CZ were spotted dining together at a high-end restaurant overseas. After that dinner, the situation changed drastically: Huobi's HUSD gradually fell out of favor, and Paxos established itself as the "full-time custodian" of BUSD. CZ entrusted Binance's liquidity to Teo, who in turn used the New York State Department of Financial Services' (NYDFS) "green list" license to provide Binance with a protective shield.
1.2 A Moment of Passion: The "Exchange Rate Unification Blitzkrieg" of 2022
The most "exciting" and controversial moment in BUSD's history occurred in September 2022. In an attempt to challenge the dominance of USDT and USDC, Binance launched a stunning "liquidity unification" campaign.
Binance announced that it will automatically convert existing user balances and new deposits of USDC, USDP (Paxos Dollar), and TUSD (TrueUSD) into BUSD at a 1:1 ratio.
Binance has removed spot trading pairs for USDC, USDP, and TUSD. This means that while users can deposit USDC into Binance, the world's largest liquidity pool, they will only see and use BUSD in their accounts. (However, withdrawals can be made in USDT and USDC.)
This was a blatant and calculated maneuver. By forcibly merging liquidity, BUSD instantly gained trading depth that originally belonged to its competitors. Although Circle (the issuer of USDC) CEO Jeremy Allaire stated on Twitter that this would help increase dollar liquidity, USDC's brand presence within the Binance ecosystem was effectively erased, becoming "fuel" for BUSD.
This aggressive strategy proved remarkably effective. BUSD's market capitalization surged to an all-time high of $23 billion in November 2022, at one point accounting for half of the trading volume on centralized exchanges. That was BUSD's most glorious moment, and also the culmination of Binance's ambition to establish an independent financial closed loop.
1.3 The "Valentine's Day Massacre" of Regulation
However, this unified situation came to an abrupt end on February 13, 2023. The NYDFS pointed out that Binance's "Binance-Peg BUSD" (a shadow version issued for use on the BNB Chain) exceeded Paxos's regulatory scope and ordered a halt to its minting. BUSD's market capitalization plummeted from its peak of $23 billion to zero, and the empire built through "automatic conversion" collapsed under the iron fist of regulation.
For Teo, this was undoubtedly a devastating blow. As an architect, he watched helplessly as the "child" he and CZ had raised together was forcibly euthanized. Paxos was forced to sever ties with Binance, and Teo subsequently entered a period of relative obscurity lasting over a year.
However, the story doesn't end there. Rich Teo's high-profile comeback in the Trump family's crypto project, World Liberty Financial (WLFI), is seen as a continuation of his story with CZ. Teo is leveraging his new political capital to build a new compliant stablecoin (USD1), while WLFI heavily relies on the liquidity of the BNB Chain. It seems that these two old friends are continuing their "liquidity pact" in a more subtle and roundabout way, operating within the regulatory cracks.
Chapter Two: Achilles' Heel – The Twins and the Thunder of Regulation
2.1 Fatal Structural Flaw: Binance-Peg BUSD
Behind BUSD's success lies a structural flaw that ultimately led to its downfall. In reality, BUSD circulating in the market exists in two distinct forms:
- Paxos-issued BUSD (ERC-20): This is a truly "compliant BUSD" issued by Paxos on the Ethereum blockchain, directly regulated by the NYDFS, and its reserves are strictly held in segregated accounts in the United States.
- Binance-Peg BUSD (BEP-20, etc.): This is a "wrapping token" created by Binance to expand its ecosystem to non-Ethereum chains (such as BNB Chain, Polygon, Avalanche).
In theory, the mechanism for 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 of Paxos. The NYDFS's regulatory authority and "green list" only cover Paxos BUSD on Ethereum, not Binance-Peg BUSD.
The problem stemmed from a breakdown in reserve management. Investigations by Bloomberg and other media outlets revealed that during certain periods of 2020 and 2021, the wallets supporting Binance-Peg BUSD experienced severe undercollateralization, with a shortfall reaching as high as $1 billion. Although Binance claimed this was merely an "operational delay" rather than a solvency issue, it directly crossed the line for regulators: a stablecoin claiming to be "NYDFS regulated" had spawned an unregulated "shadow version" with chaotic reserve management.
2.2 The Regulatory Hammer: The "Valentine's Day Massacre" of 2023
BUSD's fate came to an abrupt end on February 13, 2023. On that day, the New York State Department of Financial Services (NYDFS) issued an executive order requiring Paxos to immediately cease minting new BUSD tokens.
The regulator's reasoning is clear and fatal: Paxos failed to effectively oversee its relationship with Binance, particularly regarding the issuance of Binance-Peg BUSD, allowing compliant BUSD to be used as an endorsement for unauthorized derivatives. The NYDFS explicitly stated: "While we authorize BUSD on Ethereum, we have never authorized Binance-Peg BUSD."
At the same time, the U.S. Securities and Exchange Commission (SEC) issued a Wells Notice to Paxos, alleging that BUSD was an "unregistered security." The logic behind this allegation was that BUSD was not merely a payment instrument; it was part of Binance's ecosystem profit-making mechanism (through products like Earn), and therefore could constitute an investment contract. Although the SEC later dropped this specific investigation in July 2024, the double blow at the time was already potentially fatal.
2.3 Fall and Retreat
"Stopping minting" means that BUSD has become a "zombie token" that can only be redeemed and cannot be issued again. For an asset designed as a medium of liquidity, this is a death sentence. With Paxos announcing the termination of its partnership with Binance, BUSD's market capitalization began a freefall. Within just a few days, hundreds of millions of dollars flowed out; within a year, its market value shrank by more than 90%.
Binance was forced into a painful retreat:
- Delisting of trading pairs: Gradually remove spot and leveraged trading pairs for BUSD.
- Cessation of use as margin: It has been announced that BUSD will no longer be used as a margin asset for contract trading.
- Forced conversion: Encourages users to convert BUSD to other stablecoins (such as FDUSD).
The once-booming stablecoin empire collapsed under the iron fist of regulation. Binance lost a key stablecoin asset and was forced to rethink its stablecoin strategy.
Chapter 3: The Transition During the Vacuum Period and the Emergence of FDUSD and BFUSD
In the initial period after BUSD's collapse, Binance faced the resentment of losing its own stablecoin – why should it hand over this revenue to someone else? To fill this void, Binance quickly supported First Digital USD (FDUSD), a stablecoin issued by Hong Kong-based First Digital Labs.
Binance's support for FDUSD almost perfectly replicates the strategy it used to support BUSD:
- Launch a "zero commission" promotion for the FDUSD trading pair.
- Offers a 1:1 lossless conversion from BUSD to FDUSD.
- Add FDUSD as a mining option to Launchpool.
However, FDUSD is more of a strategic buffer. While it addresses the shift in compliance location (from the US to Hong Kong), it remains a traditional, centralized, third-party issued stablecoin. It doesn't solve the core problem: Binance remains passive if regulators target the issuer again. Furthermore, in an environment with USD interest rates as high as 5%, the FDUSD (and USDT/USDC) model means the issuer earns all the interest, while users gain nothing. This is outdated in the DeFi era.
The era of new stablecoins has passed. FDUSD's biggest use case used to be participating in Launchpool. With the sharp decline in Launchpool activities, the use value of FDUSD has been shrinking. In addition, the scandal exposed by Justin Sun in April 2025 has challenged the growth of FDUSD.
BFUSD (Binance Futures USD) was created to compete with the "contract holding profit" feature of its rivals.
Binance has repeatedly emphasized that BFUSD is a "reward-based margin asset," not a true stablecoin.
Users holding BFUSD can earn 4-5% APY. This return comes from a "Delta hedging" strategy.
BFUSD cannot be withdrawn; it can only be used as margin in Binance Futures accounts. It serves as Binance's "internal circulation" tool, ensuring users don't transfer funds out of the exchange even during bear markets. It's an asset appreciation product disguised as a "stablecoin." Although BFUSD has achieved considerable success (currently with a supply of 1.8 billion), Binance understands that stablecoins that cannot leave the exchange are essentially just tokens.
Chapter Four: United Stables ($U) – The “Surprises” and New Landscape It Brings
If BUSD represents "exclusive" hegemony, and BFUSD represents "internal" defense, then the newly released United Stables ($U) brings a completely different surprise: "compatibility" and "future".
4.1 Instead of "reinventing the wheel," we should "devour the wheel."
Unlike the BUSD era, which attempted to eliminate USDC, $U adopted a "meta-stablecoin" strategy.
$U is backed by a basket of assets. According to information released on December 18, 2025, its reserves include USDT, USDC, and USD1.
Continuing BUSD's unified strategy, regardless of whether it's USDC, USDT, USD1, or USD, they all become the underlying assets of $U, but are presented externally as U. By absorbing the liquidity-fragmented USDT and USDC into $U's reserve pool, United Stables attempts to "unify" these assets on the BNB Chain through algorithms, issuing $U with the best liquidity, perhaps more analogous to CurveUSD. U is the unified name for these stablecoins, but users can choose other stablecoins when withdrawing/redeeming.
This is a higher-dimensional attack—since you dare not use the dollars I issue, I will package the dollars you dare to use into my tokens.
4.2 Surprise Two: Subtle Clues – Trump-Related Cryptocurrency USD1 Enters the Fray
United Stables' strategic surprise also lies in including USD1 in its reserve assets. (This is a stablecoin issued by World Liberty Financial (WLFI), a crypto project of the Trump family, and the project's stablecoin lead is Richmond Teo, the former architect of BUSD. One wonders if this connection was a factor?)
After all, USDT is far smaller than USDC, and this support seems more like a political pledge to pledge allegiance to USD1. It's foreseeable that United Stables will provide USD1 with a huge range of use cases (as the underlying layer of $U), given that USD1's current use cases are relatively limited.
4.3 Surprise Three: Currency Born for AI (The AI Economy)
United Stables explicitly states that $U is "designed for the AI economy".
As United Stables tweeted
EIP-3009 (Gas-Free Authorization): Allows "gas-free transfers." This means that future AI agents (Bots) will not need to hold BNB or ETH as transaction fees when making high-frequency micropayments. This solves the biggest pain point of the machine-to-machine (M2M) economy.
x402 Delegated Execution: A standard that allows smart contracts to automatically execute fund transfers based on specific conditions. This paves the way for future "autonomous hedge funds" or "supply chain automated payment AI."
As of press time: USDT has a circulating supply of 55 million. Is this a result of accumulated strength, or just a fleeting phenomenon?
https://x.com/UTechStables/status/2001667382444482708?s=20
Epilogue: How far has it been from "domineering" to "universal harmony"?
Looking back at the evolution from BUSD to United Stables, we see a remarkable evolution in strategic thinking:
The BUSD Era (Domineering): Leveraging the exchange's monopoly, it forcibly eliminated competitors through "automatic conversion" to pursue absolute market share. While this approach was "passionate," it was also highly susceptible to joint retaliation from regulators and competitors.
United Stables Era (Datong): Learning from past mistakes, adopting an "aggregation" strategy. Acknowledging the status of USDT/USDC, but using $U as the underlying asset, while creating its own "super application" on top.
By proactively developing AI payment solutions, we can move beyond the current zero-sum game played by human traders and seize the incremental market of the future machine economy.
$U is not just a new aggregated stablecoin; it's also an attempt by BUSD, after its regulatory setbacks, to redefine the rules of the stablecoin game using more sophisticated, nuanced, and technologically advanced methods. It's a case of risk and opportunity coexisting; let's wait and see!
