Binance is in the news again, with its latest token, BFUSD, which promises annual percentage yield of 19.55%.
But before it even launches, the new asset is already facing comparisons to the infamous UST stablecoin.
It’s kind of USD. Why it’s not a stablecoin?
Launched on Monday, BFUSD is being marketed as an alternative to traditional stablecoins.
Users can earn daily rewards just by holding BFUSD in their UM wallets, no staking or locking up funds required.
BFUSD maintains its stability with a robust 105.54% collateralization ratio and a reserve fund that includes 1.1 million USDT as of November 17, 2024.
But here’s where things get a bit dicey, many in the crypto community are drawing parallels between BFUSD and UST, which famously collapsed after Anchor Protocol offered 20% yield before its downfall in May 2022.
Binance has been quick to clarify that BFUSD is not a stablecoin, instead, it’s a reward-bearing margin asset designed for futures trading, which hasn’t launched yet.
They promise more details are coming soon about how that enticing APY is calculated.
The comparison game
Despite Binance’s insistence that BFUSD isn’t a stablecoin, their own website touts it as offering “attractive high APY on your BFUSD holdings,” which could be seen as a bit misleading.
Earlier this year, the launch of Ethena Labs’ USDe synthetic dollar raised eyebrows when it offered 27.6% APY, outpacing UST’s yields and causing investors to sweat a little.
But worth to mention, these yields seems high only if you don’t know how much money margin traders lose.
BitMEX founder Arthur Hayes explained that Ethena uses a dual-asset strategy to generate yield for USDe by combining Ethereum staking yields with positive perpetual swap funding rates.
This approach allows USDe to deliver returns independently of its governance token, unlike UST.
BUSD’s rocky road
As Binance rolls out BFUSD, it’s also worth remembering the rocky road of its previous stablecoin, BUSD.
Back in February 2023, the New York Department of Financial Services ordered Paxos—Binance’s partner—to stop minting BUSD due to increased regulatory scrutiny in the U.S.
In response, Binance began winding down BUSD’s use, removing it from its SAFU Fund and halting related borrowing and staking services.
By December 2023, they officially stopped supporting BUSD altogether and shifted users over to First Digital’s FDUSD stablecoin.
