Binance on BFUSD: Not a Stablecoin, High-Yield Concerns Addressed

• Binance clarified that BFUSD is a reward-bearing margin asset, not a stablecoin.

• The announcement triggered concerns, with many comparing BFUSD to the collapse of TerraUSD (UST).

Binance has clarified the nature of its new asset, BFUSD, stating that it is a reward-bearing margin asset rather than a stablecoin. The statement posted on X (formerly Twitter) came after users raised questions on the platform due to a previous post by Zoomerfied, a crypto news aggregator. The post stated that a new stablecoin named BFUSD would yield a massive 19.55% per annum, which was met with comparisons to the downfall of TerraUSD. 

[ ZOOMER ]

BINANCE TO LAUNCH NEW STABLECOIN WITH 19.55% APY: BLOG

— zoomer (@zoomerfied) November 18, 2024

Reactions and Parallels to TerraUSD Collapse

The first post received a lot of response from the crypto community, with many people comparing it to the recent failure of TerraUSD (UST) in 2022. UST is an algorithmic stablecoin that offered a 20% annual yield through the Anchor Protocol but which fell below $0.01 in May 2022 after depegging from the dollar. 

This collapse erased hundreds of billions of dollars in market capitalization and affected the entire crypto space. UST’s sister token, LUNA dropped from a price of $80 to a fraction of a cent within a few days.

Critics have had significant doubts about the viability of the BFUSD’s yield model, with comparisons to previous high yield failures. The critics include RunnerXBT and Jameson Lopp who took negative positions. Some users such as RunnerXBT accused platforms like Anchor of making unrealistic promises, while others wondered if the yield might be generated from users themselves, which added more suspicion.

Binance announces BFUSD, a yield-bearing stablecoin offering 19.55% APY that can also be used as collateral. pic.twitter.com/2siqlqBtdK

— Jameson Lopp (@lopp) November 18, 2024

BFUSD a Reward-Bearing Asset for Margin Trading

To counter the rumors, Binance stated that BFUSD is a margin asset designed for use in the futures market, not a stablecoin. This does not require users to stake or lock up their tokens as collateral in order to use them. BFUSD will be held in a UM wallet, where traders will get daily airdrops depending on the hourly balance of their positions. These rewards will then be transferred to the users’ UM Futures Wallet respectively. It will be based on the users’ social credibility score or the VIP level of the Binance exchange platform.

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

— Binance Customer Support (@BinanceHelpDesk) November 18, 2024

Although the clarification has been made, doubts still float around. On the BFUSD product page, the potential yearly returns are presented, which are comparable to those of other stablecoins. It also made one wonder how the company could deliver the promised 19.55% yield. Binance has promised to give more details in the near future but the controversy over how these returns are calculated still lingers.

Binance’s introduction of BFUSD can be considered complicated because of the exchange’s past experience with stablecoins. It also halted the use of its Binance USD (BUSD) stablecoin in early 2024 following regulatory action and urged users to use First Digital USD (FDUSD).

The wider crypto market is also seeking other ways of addressing the problems that dollar-backed assets present. For instance, BlackRock’s BUIDL token holds short-term U.S. Treasury bills as its underlying asset, while Ethena’s USDe employs auto-hedging to keep its price stable at a dollar.