Add the white chocolate, peanut butter, and butter to a large microwavable measuring cup.
Heat for 1 minute on high. Stir. Heat for 30 more seconds. Stir until all the chocolate melts and the mixture is smooth. Stir in the vanilla.
Pour the chocolate mixture over the cereal. Stir until all the cereal is coated.
Pour 1/4 of the powdered sugar into a gallon-sized resealable bag. Add half of the chocolate-coated cereal then add another 1/4 sugar. Seal the bag and shake it to coat the cereal. Pour the sugar-coated cereal into a large clean bowl. Then add 1/2 of the sugar to the bag and the rest of the Chex. Top it with the remaining sugar. Seal the bag and shake it to coat the cereal. Then pour it into the bowl. Use a small spoon to toss the cereal to ensure it is all coated.
Spread the muddy buddies onto a baking sheet to cool, stirring occasionally. Or leave it in the large mixing bowl and stir it often to prevent steam buildup which can make it soggy.
Store in an airtight container.
Notes
Tip
If you have trouble stirring the muddy buddies, pour the Chex cereal into 2 large bowls. Add half of the chocolate mixture to each and stir. Additionally, using a small spoon to mix the chocolate and cereal can make it easier to work with.