Key Points
- Binance is about to launch BFUSD to offer passive rewards to users.
- Holders will be protected from negative returns, according to the crypto exchange.
Binance introduces BFUSD – a reward-bearing margin asset, enabling users to earn passive rewards by holding it or trading futures. BFUSD will be officially launched tomorrow, November 27, at 02:00 UTC.
Following the official launch, eligible users can start purchasing BFUSD, with Binance noting that only eligible futures users in supported markets can buy BFUSD. The futures platform is restricted in some regions, including the US.
What is BFUSD?
BFUSD is created as a margin asset for futures trading, and it’s also designed to provide passive rewards, according to a spokesperson at the exchange.
More than that, BFUSD holders will enjoy a Base APY that accrues on a daily basis even if they don’t trade futures. Also, traders qualified for USDⓈ-Margined Futures trading activity will get a higher APY for the day.
USDⓈ-Margined Futures are futures contracts on Binance using stablecoins such as USDC or USDT as collateral and settlement currency.
They offer traders a stable trading experience by eliminating the volatility that’s usually associated with using crypto as collateral.
BFUSD, Not a Stablecoin
Binance clarified that BFUSD is not a stablecoin and cannot be withdrawn from a Binance futures account or traded on the open market.
BFUSD can only be used as margin for futures trading on Binance, and it can be redeemed with the exchange for USDT.
BFUSD Return-Generating Strategies
BFUSD can generate returns via two strategies:
- Delta hedging crypto between spot and futures markets to collect funding fees
- Staking ETH
Delta hedging is offsetting the price risk of a spot position with an opposing futures position. Funding fees ensure spot and futures prices eventually converge. Funding fees are used by long-position holders to pay shorts when the funding rate is positive, and vice-versa when it’s negative.
BFUSD’s structure could seem similar to Ethena’s synthetic dollar, USDe which also uses delta hedging to offer rewards, but it’s different.
USDe in itself doesn’t bear rewards, and it’s up to users to utilize it how they wish. On the other hand, BFUSD is a margin asset that bears passive rewards for holders.
BFUSD Rewards Will Never Go Below 0
Binance assured users that BFUSD’s APY/reward rate will never go below zero, which means that users will always be protected from negative returns.
The exchange highlighted that there will be times when the APY for BFUSD is negative when the market is bullish and the funding income fee is negative – but, what Binance designed for BFUSD to do, is that during good times, a portion of the total APY generated is kept in the BFUSD Reserve Fund.
This means that in negative funding rate times, users will not have to pay for the negative funding – this will be covered by the Reserve Fund.
APY for BFUSD – Historical Data
Based on historical data, the base APY for BFUSD ranged between 12% and over 35% from November 20 to November 25.
The boosted APY for traders qualified for futures trading reached 15% and over 47% during the same period.
Also, Binance mentioned that according to historical data, the ETHUSDT trading pair’s funding rate has been positive for 350 out of 365 days. On a quarterly basis, funding fees have been mostly positive since the debut of Binance Futures in 2019.
This offers a strong basis for BFUSD’s ability to generate consistent APY.
User Rewards and Fund Allocation
Binance plans to generate total APY on BFUSD and the exchange will distribute most of it as daily rewards in USDT. At the same time, a portion will be allocated to the Reserve Fund.
This Reserve Fund will be initially seeded with 1 million USDT and will support hedging strategies and cover the potential negative funding rates. The reserve fund allocation will reportedly be enough to protect users.
he base and boosted APYs for BFUSD are calculated on a daily basis, and they are expected to fluctuate. Funding rates are vital in determining the reward rates for BFUSD holders.
In a bullish market, the funding rates paid by longs to shorts on futures positions can be higher, and they will result in higher reward rates as well.
BFUSD Purchase and Redemption Fees
At the moment, BFUSD’s purchase and redemption fees are 0.1%, and they can change.
The promotional period will start tomorrow, November 27, and last until December 26 – during all this time, users can buy BFUSD without incurring fees and participate in earning 100,000 USDT in bonus APY and USDT vouchers.
When BFUSD launches tomorrow, USDT will be the only supported asset for transactions. This means that all purchases, rewards, and redemptions will be denominated and paid in USDT.
In the official announcement, Binance also said that each user has a limited quota of BFUSD, and the size is based on the user’s VIP level.
