BFUSD: Binance Clarifies New Product is Not a Stablecoin, Offers Nearly 20% Annualized Yield

The world's largest cryptocurrency exchange, Binance, has launched a new asset called BFUSD, sparking speculation that the asset may be a high-yield stablecoin. However, Binance quickly clarified the misunderstanding, stating that although BFUSD's name includes "USD" and it offers an annual percentage yield (APY) as high as 19.55%, it is not a stablecoin.

What is BFUSD? A New Margin Asset with Returns

On Monday, Binance announced the launch of BFUSD, describing it as a "margin asset for futures trading with returns." Binance emphasized that BFUSD has not been officially launched yet and is different from traditional stablecoins. Binance denied the misconception that BFUSD is a stablecoin.

"BFUSD is not a stablecoin but a margin asset with returns for futures trading," Binance clarified, stating that BFUSD will offer high returns without explaining the specifics of how these returns will be generated.

High Returns: A Comparison with TerraLUNA

The 19.55% annualized return has drawn attention from the crypto community, with some comparing BFUSD to the 2022 collapsed TerraLUNA stablecoin. At that time, TerraLUNA offered a similar return rate of around 20% through the Anchor Protocol.

Binance has not publicly disclosed how BFUSD generates such a high annualized return. In response to inquiries, Binance stated that more details on the asset's return mechanism will be shared in the near future.

According to Binance's release page, users holding BFUSD can use it as collateral without the need for pledging or locking up. Users simply need to store BFUSD in the designated "UM Wallet" and will receive airdrop returns daily based on hourly snapshot data. These rewards will be directly sent to the users' "UM Futures Wallet." Eligibility and restrictions for holding BFUSD will depend on the user's VIP level on the platform.

High-Yield Stablecoin-Like Assets Gaining Popularity

BFUSD is part of the trend of high-yield tokenized products that, while similar to stablecoins, do not follow traditional reserve-backed models. Similar products in the market include BlackRock's BUIDL token and Ethena's USDe, which use innovative financial strategies such as Delta hedging or investing in U.S. Treasury bonds to provide competitive returns.

A Brief History of Binance Stablecoins

Binance has a history in the stablecoin ecosystem. In 2019, it collaborated with Paxos to launch Binance USD BUSD, with Paxos serving as the token's issuer and custodian. However, due to regulatory scrutiny in the U.S., Binance was forced to phase out BUSD by February 2024. The exchange recommended users to switch to First Digital USD FDUSD, a stablecoin introduced as an alternative.

As Binance commits to further disclosure, the crypto community will closely monitor whether BFUSD can deliver on its promises without repeating the pitfalls of similar past products.