Cryptocurrency exchange Binance has just introduced BFUSD, a new stablecoin with an expected yield of up to 19.55%/year. However, Binance said that BFUSD has not yet been officially deployed on the blockchain.
Unlike traditional stablecoins, BFUSD is designed as a yield-earning asset, pegged to the US dollar. Binance has pledged to provide specific information on how this impressive yield is achieved soon.
BFUSD: A Potential Competitor to Ethena USDe?
BFUSD is being compared to Ethena’s USDe, a yield-earning asset based on the Ethereum funding rate. Initially, BFUSD will only operate within the Binance ecosystem and act as collateral.
How BFUSD Works
Users can purchase a limited amount of BFUSD to earn passive rewards. Yields are calculated based on the lowest balance of the day, through an hourly snapshot mechanism. In addition, BFUSD can be used as collateral in yield pools or integrated on Binance Launchpad to support startups.
Binance aims to encourage users to hold BFUSD for more than 24 hours and at the same time provides flexible features to optimize the use of this asset.
Challenges and concerns
However, BFUSD is not compliant with the European Union’s MiCA regulation because it is collateralized by cryptocurrency, which means that users in this region cannot earn passive interest.
BFUSD’s high interest rate of up to 19.55% has also raised concerns in the community, with many comparing it to the failure of UST under the Luna ecosystem. Notably, Binance has not yet disclosed the source of this yield. Most likely, the attractive interest rate comes from the exchange’s marketing budget.
BFUSD is backed by a reserve fund of up to 1.1 million USDT, which acts as over-collateral to maintain stability. In the first phase, Binance plans to issue 20 million BFUSD to ensure the sustainable development of the project.
Challenging future
Currently, BFUSD is still awaiting approval from US regulators. The commitment to a high interest rate may be a major barrier to gaining market acceptance.
However, after Binance announced BFUSD, the price of BNB rose to $621.93 and remained above $600. Although Binance is considered the center of innovation in the cryptocurrency field, high-yield mechanisms like BFUSD still face a lot of doubts from the community.
