Binance Announces BFUSD with High APY but Faces UST Comparisons

Binance’s token BFUSD has already sparked speculation even before its launch.

It all started with Binance’s introduction of the new asset on Monday which offers 19.55% APY, positioning itself as an alternative to conventional stablecoins.

Not a Stablecoin, But a Reward-Bearing Asset

According to the website, users can earn daily rewards simply by holding BFUSD in their UM wallets without staking or locking funds. BFUSD maintains its stability through a 105.54% collateralization ratio and a reserve fund containing 1.1 million USDT as of November 17, 2024.

It is important to note that Anchor Protocol had offered a 20% yield on Terraform Lab’s algorithmic stablecoin UST before it collapsed in May 2022. This led many in the community to compare BFUSD to the failed stablecoin.

The crypto exchange giant, however, clarified that BFUSD is not a stablecoin but a reward-bearing margin asset for futures trading, which has yet to be launched. Binance’s customer support further added that it will share more details soon, including how APY is determined.

Despite the clarification, the webpage states,

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

Earlier this year, Ethena Labs USDe synthetic dollar’s launch on the public mainnet ignited concerns among investors due to its offering a 27.6% APY, which was more than the Anchor Protocol yield on UST.

During this time, BitMEX founder Arthur Hayes explained that Ethena employs a dual-asset strategy to generate yield for its USDe stablecoin: Ethereum staking yield and positive perpetual swap funding rates. This combination enabled USDe to deliver returns independently of Ethena’s governance token, setting it apart from other stablecoins like UST, which rely on different mechanisms.

Binance’s BUSD

Amid Binance’s introduction of BFUSD, it’s worth revisiting how regulatory scrutiny influenced the exchange’s decision to wind down its previous stablecoin, BUSD.

In February 2023, the NYDFS instructed Paxos, Binance’s partner, to stop minting BUSD amid increased regulatory oversight in the United States. In response, Binance started winding down BUSD’s use, removing it from its SAFU Fund and discontinuing related borrowing and staking services. By December 2023, Binance had officially ceased support for BUSD and shifted users to First Digital’s FDUSD stablecoin.