Binance Launches BFUSD High-APY Stablecoin Amid UST Comparisons

Binance introduced BFUSD, a reward-bearing token offering 19.55% APY, backed by overcollateralization and daily rewards without staking.

The token issued by Binance BFUSD has already generated speculation prior to its launch.

The process commenced with the introduction of the new asset on Monday by Binance, which positions itself as an alternative to traditional stablecoins and offers an annual percentage yield (APY) of 19.55%.

A Reward-Bearing Asset, Not a Stablecoin

Users can earn daily rewards by holding BFUSD in their UM wallets without staking or securing funds, as stated on the website. As of November 17, 2024, BFUSD’s stability is preserved by a reserve fund that contains 1.1 million USDT and a collateralization ratio of 105.54%.

It is crucial to mention that Anchor Protocol had provided a 20% yield on Terraform Lab’s algorithmic stablecoin UST prior to its collapse in May 2022. As a result, numerous members of the community began to draw comparisons between BFUSD and the ultimately unsuccessful stablecoin.

Nevertheless, the crypto exchange behemoth clarified that BFUSD is not a stablecoin, but rather a reward-bearing margin asset for futures trading, which has not yet been launched. Additionally, Binance’s customer support stated that it will provide additional information in the near future, including the methodology used to compute the annual percentage yield (APY).

Despite the clarification, the webpage states,

“High APY: Enjoy attractive high APY on your BFUSD holdings, surpassing the yields offered by many other stablecoins.”

Ethena Labs USDe synthetic dollar’s introduction on the public mainnet earlier this year sparked investor apprehensions as it offered a 27.6% APY, which was higher than the Anchor Protocol yield on UST.

During this period, Arthur Hayes, the founder of BitMEX, disclosed that Ethena implements a dual-asset strategy to produce a yield for its USDe stablecoin: positive perpetual swap funding rates and Ethereum staking yield. Unlike other stablecoins, such as UST, which rely on distinct mechanisms, USDe was able to generate returns independently of Ethena’s governance token as a result of this combination.

Binance’s BUSD

In the wake of Binance’s introduction of BFUSD, it is worthwhile to reflect on the extent to which regulatory scrutiny influenced the exchange’s decision to discontinue its previous stablecoin, BUSD.

The NYDFS directed Paxos, Binance’s partner, to cease minting BUSD in February 2023 due to the heightened regulatory scrutiny in the United States. Binance started reducing the use of BUSD in response, removing it from its SAFU Fund and discontinuing related borrowing and staking services. In December 2023, Binance discontinued its support for BUSD and transitioned consumers to First Digital’s FDUSD stablecoin.