Binance Clarifies New BFUSD Asset Isn’t Stablecoin despite High Yields

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As an analyst with over two decades of experience in the ever-evolving world of finance and technology, I must say that Binance’s latest offering, BFUSD, has certainly piqued my interest. Having closely followed the crypto space since its infancy, I can confidently assert that the market is always abuzz with innovative products and concepts, some more confusing than others.

On November 18, 2024, Binance announced the upcoming introduction of BFUSD, sparking curiosity and some bewilderment within the cryptocurrency sphere. Initially, it was speculated that BFUSD might be a high-yield stablecoin, due to its attractive 19.55% annual percentage yield (APY) and the “USD” denomination. However, Binance quickly clarified the matter, stressing that BFUSD is not a stablecoin and its release is yet to occur.

Not a Stablecoin — Just a High-Yield Margin Asset

To address the ongoing rumors, Binance recently made a post on social media platform X (previously known as Twitter) to dispel a common misconception. The company explained that BFUSD is yet to be launched and serves primarily as a margin asset offering rewards for futures trading, rather than functioning as a stablecoin.

The BFUSD has not been released yet. It’s important to note that it’s not a stablecoin, but rather an asset for futures trading that offers rewards. We appreciate your curiosity and will disclose additional information such as the method by which APY is calculated soon.

Despite Binance’s direct clarification, the fine print on the BFUSD product page states:

Reap superior interest rates on your BFUSD savings compared to many other stablecoin alternatives.

The comparison cast some uncertainty since, generally, stablecoins maintain a fixed value equivalent to the U.S. dollar. However, Binance hasn’t disclosed in full detail how this asset can produce such high returns, despite mentioning that more information is forthcoming soon.

According to Binance’s BFUSD page, this asset deviates noticeably from traditional stablecoins. Unlike other stablecoins, BFUSD doesn’t necessitate fund staking or lock-up when used as collateral for margin trading. Instead, users keep their assets in a UM wallet and are rewarded with daily airdrops based on hourly assessments of their holdings. These rewards are subsequently moved into a UM Futures Wallet.

It’s unclear exactly how the high annual percentage yield (APY) of 19.55% is calculated. However, Binance’s customer service has hinted at providing more information about this soon, causing users to wonder and guess about the APY calculation details in the meantime.

What’s behind Binance’s High-Yield Product?

BFUSD’s rollout mirrors a rising pattern in the cryptocurrency sector, as companies introduce high-yield tokens linked to the US dollar, but built upon the conventional stablecoin framework. For instance, BlackRock unveiled its BUIDL token, an on-chain money market fund that invests in short-term U.S. Treasury bills. In a similar vein, Ethena debuted USDe, a synthetic dollar maintaining its value through an automated delta-hedging approach.

Binance, of course, has its own history with stablecoins. In 2019, it launched Binance USD in partnership with Paxos, a Web3 payments infrastructure firm. BUSD was pegged 1:1 to the U.S. dollar, and Paxos handled the issuance and reserves. However, following increasing regulatory scrutiny from US authorities, Binance phased out support for BUSD by February 2024. 

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2024-11-19 11:49