Binance announces BFUSD with high APY but faces UST comparisons

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

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

It is not a stablecoin, but an asset that generates a reward

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 collateralization ratio of 105.54% 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% return 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 margin asset that generates a reward for futures trading, which has yet to be launched. Binance customer service added that it will share more details soon, including how the APY is determined.

Despite the clarification, the website says:

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

Earlier this year, the launch of Athena Labs USDe synthetic dollar on the main public network caused concern among investors due to its offering of 27.6% APY, which was more than the yield of Anchor Protocol in UST.

During this time, BitMEX founder Arthur Hayes explained that Athena uses a two-asset strategy to generate returns for its USDe stablecoin: Ethereum staking returns and positive perpetual funding rates. This combination allowed USDe to offer returns independent of Athena’s governance token, differentiating it from other stablecoins such as UST, which rely on different mechanisms.

BUSD from Binance

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

In February 2023, the NYDFS ordered Binance partner Paxos to stop minting BUSD amid increased regulatory oversight in the United States. In response, Binance began reducing the use of BUSD, removing it from its SAFU Fund and discontinuing related lending and holding services. By December 2023, Binance had officially dropped support for BUSD and moved users to First Digital’s FDUSD stablecoin.

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