On 18 November 2024, Binance introduced a new product called BFUSD, causing a stir in the cryptocurrency world.
With its eye-catching 19.55% annual percentage yield (APY) and “USD” in its name, many assumed it was a high-yield stablecoin.
However, Binance quickly clarified that BFUSD is not a stablecoin and hasn’t officially launched yet.
The announcement led to confusion and speculation, prompting Binance to address the matter directly. On social media platform X, the company explained:
“BFUSD is not yet launched. To be clear, it is not a stablecoin but a reward-bearing margin asset for futures trading. We are glad to see the community’s interest and will be sharing more details soon, including how APY is determined.”
On the product’s page, BFUSD is promoted as offering “attractive high APY… surpassing the yields offered by many other stablecoins”.
This statement caused more uncertainty, as typical stablecoins are pegged 1:1 to the US dollar and rarely provide such high returns.
Binance has promised to reveal more details soon, but for now, the exact workings of BFUSD and how it can deliver a 19.55% yield are unclear.
How BFUSD works
BFUSD is not designed like a traditional stablecoin. Instead, Binance describes it as a “reward-bearing margin asset” for futures trading.
Unlike stablecoins, which are usually used for transactions or as stores of value, BFUSD is meant to serve as collateral in trading.
Holders of BFUSD don’t have to stake or lock their funds to earn rewards. Instead, they keep the asset in a special Unified Margin (UM) wallet.
Binance tracks their holdings hourly and deposits rewards daily into their UM Futures Wallet. This approach allows users to use BFUSD for trading while still earning rewards.
Despite its promise of a high 19.55% APY, Binance hasn’t yet explained how BFUSD generates such returns.
A company representative on X said more information about the APY calculation would be shared soon, leaving users to speculate in the meantime.
This new product is part of a broader trend in the cryptocurrency space, where platforms are offering innovative, high-yield products tied to the US dollar.
For instance, BlackRock’s BUIDL token invests in short-term US Treasury bills, while Ethena’s USDe uses a complex trading strategy called delta-hedging to maintain its dollar value.
Binance also has a history with stablecoins. In 2019, it launched Binance USD ($BUSD) in partnership with Paxos, a company that managed the token’s reserves.
The stablecoin was pegged to the US dollar and became a popular choice among users. However, due to regulatory pressure from US authorities, Binance phased out support for $BUSD in early 2024.
Concerns over BFUSD’s high returns
The crypto community has reacted cautiously to BFUSD, with some comparing it to past high-yield projects that failed disastrously. One such project was Terra Luna’s algorithmic stablecoin, $UST, which promised a 20% yield through its Anchor protocol.
In 2022, $UST lost its $1 peg and collapsed, wiping out billions in value. Within weeks, its price fell below $0.01, and its companion token, $LUNA, dropped from $80 to nearly zero.
Thousands of users suffered huge losses, and the crash became one of the most infamous failures in the cryptocurrency world.
Reacting to BFUSD’s high APY, some crypto enthusiasts voiced their scepticism. “How… how much did Anchor… did… Yield?” asked pseudonymous trader RunnerXBT, referencing Terra’s broken promises. Another user bluntly asked, “Are we the yield?”
Even experienced crypto figures like Jameson Lopp, a well-known Bitcoiner, raised concerns. While he didn’t directly criticise BFUSD, his response hinted at doubt about such lofty claims.
Binance has reassured users that BFUSD is still in development and that more details will be shared soon.
