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How We Back Binance-Peg BUSD (and Explaining Historical Discrepancies)

2023-01-10

Recent news reports have shone a light on Binance-Peg BUSD and how it doesn’t 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 it’s always 1:1 backed.

For clarity, along with Paxos issuing BUSD on the Ethereum blockchain, Binance offers a wrapped BUSD token — Binance-Peg BUSD — 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.

“Wrapping” 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. 

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.