Binance introduced a new stablecoin tied to its ecosystem, BFUSD. The stablecoin offers up to 19.55% APY, with a limit on ownership and staking.
Binance launched another native stablecoin, BFUSD, with a yield-bearing potential of up to 19.55% annualized. Binance itself reminded users that the actual asset has not yet launched or even been generated on the blockchain. The asset is also nominally priced in parity to the US dollar but is not a classical stablecoin. Binance reminded users that BFUSD is not a classic stablecoin, but a reward-bearing asset. The exchange operator also stated it would clarify how the yield of BFUSD will be achieved in the near future.
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
The actual nature of the token invited comparisons to Ethena’s USDe, which depends on making gains based on Ethereum funding rates. The launch of this type of assets led to speculation that BFUSD would be a competitor to Ethena’s USDe.
In the case of Ethena, USDe supply must be closely monitored to remain viable in multiple market scenarios. Initially, BFUSD will be used mainly within Binance’s ecosystem. However, since the asset is used as collateral, it could cause limited contagion within that ecosystem.
The actual supply and distribution of BFUSD is yet to start, but Binance has set up the main requirements for the coin. Users can buy a limited amount of BFUSD, which can be used for passive rewards.
Simply owning BFUSD in a user’s Binance wallet will grant a relatively higher yield. BFUSD can also be used as collateral on Binance yield pools only through assets mode. Binance will perform hourly snapshots and award the interest rate based on the lowest balance for the day.
With the snapshot mechanism, Binance essentially creates an overnight borrowing mechanism, encouraging users to hold their deposits for more than 24 hours. The exact role of BFUSD in the Binance ecosystem will depend on user preferences. One of the use cases is on Binance Launchpad, which introduces new tokens to those that stake BNB or other predetermined assets. Binance will make sure to have multiple mechanisms for holding, to avoid an exit of investors from BFUSD.
The new stablecoin indicated direct buying from Binance, with an upper limit depending on BNB ownership levels and VIP points.
BFUSD is the first asset that has both sides of the yield equation, serving both for passive income or as collateral. BFUSD appeared after Binance USD (BUSD) was made obsolete, due to regulatory obstacles in the US market.
Is BFUSD risky?
The high interest rate for BFUSD raised some red flags about the token’s viability. Users have compared BFUSD to Luna’s UST.
In the case of BFUSD, users must have BNB and a VIP level on the exchange to acquire more BFUSD and gain a higher yield. Binance does not specify where the yield would come from, with users speculating it may be incentivized by the exchange’s marketing budget.
BFUSD is an over-collateralized stablecoin, still requiring a robust crypto market to remain viable. Binance holds a reserve fund with 1.1M USDT as a stability guarantee, essentially sharing the same T-bill collateral with Tether.
In the initial stage, Binance will increase the supply to 20M BFUSD, to achieve a sustainable performance. BFUSD is not compatible with EU-based MiCA regulations, due to being collateralized by crypto. For that reason, only users outside the Euro Area will be able to use the full yield and passive returns features of BFUSD. Those users will be able to swap or trade with BFUSD as with other dollar-pegged coins, but will not be able to receive passive returns or yield.
Binance itself remains the busiest CEX, producing significant income to finance multiple programs. The BFUSD project is developing with a conservative amount of tokens, to avoid the risk of rehypothecation.
The new stablecoin is yet to prove its viability and achieve acceptance from US regulators. The high-yield promises may cause a problem with adoption.
Following the news of the BFUSD launch, BNB rallied to $621.93. BNB has remained relatively stagnant, though easily retaining levels above $600. Binance remains a hub for crypto innovation, though its yield-bearing mechanisms are viewed with some skepticism.
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