How We Back Binance-Peg BUSD (and Explaining Historical Discrepancies)
Note: the blog below was first published on January 10, 2023.
This was followed by a further post on January 18, 2023, which provided additional information on Binanceās wrapped tokens, which are and have always been fully collateralized.
February 1, 2023 update: further to these two blog posts, we would like to provide clarity on āBinance 8ā, which is an exchange cold wallet. Collateral assets have previously been moved into this wallet rather than into dedicated collateral wallets, and referenced accordingly on the B-Token Proof of Collateral page. Binance wanted to provide a more detailed explanation of how collateral assets have been maintained and advise that it is in the process of transferring these assets to dedicated collateral wallets.
Recent news reports have shone a light on Binance-Peg BUSD (āPBUSDā) and how it doesnāt always appear to have been completely backed by BUSD issued by Paxos. PBUSD is minted on several blockchain networks including BNB Chain, Avalanche, Polygon, and TRON.Ā PBUSD has always been, and continues to be, 100% collateralized.Ā However, the collateral has not always been stored in a single, dedicated wallet in real time so that the 1:1 backing was not always immediately visible to users.Ā Binance undertook a project to centralize the collateral in a single, dedicated wallet; this was completed on 04 January 2023 so that users have visibility into the 1:1 backing of PBUSD. Minting of PBUSD now only takes place after collateral is added to the dedicated wallet.Ā Centralization of collateral for all Binance-backed tokens into dedicated collateral wallets will be completed by 09 February.Ā This will be visible in the Proof of Reserves system that we are continuing to develop.
Importantly, despite variances in the publicly viewable data, at no point were redemptions impacted for users. There is also no impact to BUSD on ERC-20 issued by Paxos, which is regulated by the NYDFS, audited monthly, and backed by USD cash and cash-equivalent reserves.
BUSD is fully backed by USD cash and cash-equivalent reserves, as can be seen here.
Binance-Peg BUSD is fully backed by BUSD, as can be seen here.
For more details, please refer to this article: Understanding BUSD and Binance-Peg BUSD.Ā
Further Reading
Note: the original blog as first published on January 10, 2023 can be viewed below.
How We Back Binance-Peg BUSD (and Explaining Historical Discrepancies)
Recent news reports have shone a light on Binance-Peg BUSD and how it doesnāt always appear to have been completely backed by BUSD issued by Paxos. In short: Binance has always rebalanced or updated the assets in the pegged addresses periodically, not in real time. We now rebalance much more frequently to ensure itās always 1:1 backed.
For clarity, along with Paxos issuing BUSD on the Ethereum blockchain, Binance offers a wrapped BUSD token ā Binance-Peg BUSD āĀ that runs on several other blockchain networks, including BNB Chain, Avalanche, Polygon, and TRON. BUSD is fully backed by USD cash and cash-equivalent reserves, as can be seen here. Binance-Peg BUSD is fully backed by BUSD, as can be seen here.
āWrappingā tokens is blockchain terminology for creating versions of the original asset that are transportable to other chains for the sake of increasing interoperability and the interconnectedness of the digital asset space. Normally, the value of wrapped tokens is secured by locking the collateral of the original asset, which is the case with Binance-Peg BUSD. For more details, please refer to this article: Understanding BUSD and Binance-Peg BUSD.Ā
For operational reasons, on occasion in the past, there was a timing mismatch in backing Binance-Peg BUSD with BUSD, which is what has been identified in recent articles. From the data it is clear that the rebalancing did not always keep pace with the demand for Binance-Peg BUSD. Having identified this ourselves last year we now rebalance more frequently to ensure that Binance-Peg BUSD is transparently fully backed. This will be included in the Proof of Reserves system that we continue to develop.
Importantly, despite variances in the data, at no point were redemptions impacted for users. There is also no impact to BUSD on ERC-20 issued by Paxos, which is regulated by the NYDFS, audited monthly and backed by USD cash and cash-equivalent reserves.