On November 27, Binance will introduce BFUSD—described as a “reward-bearing margin asset in [USDT].” This asset allows users to earn passive income through holding or trading futures based on it.
Introducing BFUSD!
Our new reward-bearing asset built for Futures users is available now.
BFUSD purchase will open on Nov 27, 2am UTC.
Try now ? https://t.co/W0WvVrdYpz pic.twitter.com/0ZrEsM9wGE
— Binance (@binance) November 26, 2024
The exchange assures that the product’s yield “will never drop below zero.”
“BFUSD holders receive a base APY with daily accrual, even if they do not trade futures, while those eligible to trade marginable futures with USDT and USDС as collateral and settlement currency receive an increased APY for that day,” Binance explained.
The asset is available to Binance Futures users in supported jurisdictions, excluding the United States.
In a conversation with The Block, a platform representative clarified that based on historical data, from November 20 to 25, the base APY ranged from 12-35%, while the enhanced version was 15-47%.
BFUSD “is not a stablecoin,” as it cannot be withdrawn from Binance or traded on the open market.
“The asset can only be used as margin for futures trading on Binance and converted into USDT,” the statement said.
BFUSD generates profit through two strategies:
- Ethereum staking.
- Delta hedging of crypto assets between spot and futures markets.
A Binance representative stated that BFUSD’s yield generation mechanism differs from USDe by Ethena Labs, but did not provide details.
The latter’s architecture is based on a popular TradFi strategy of delta-neutral trading and portfolio management.
This strategy is often used in the options market to manage risks associated with changes in the underlying asset’s price. It is a form of Cash-and-Carry trading and is considered safe under favorable conditions.
An informed source told the publication that “USDe itself does not bear rewards. Users of the ‘synthetic dollar’ can use it at their discretion,” while “BFUSD is a margin asset that provides passive income for holders.”
In a bear market, funding rate fees become negative, but they will be offset by a reserve fund. This fund will be formed from a portion of the APY “in good times.”
“Historical data shows that the ETHUSDT funding rate remained positive on 350 out of 365 days. On a quarterly basis, the metric has been mostly positive since the futures platform’s inception in 2019. This provides a solid foundation for BFUSD’s ability to consistently generate APY,” Binance assured.
The reserve fund is expected to initially amount to 1 million USDT.
A Binance representative did not disclose the exact ratio between user rewards and contributions to the structure. He stated that it would be “sufficient to protect holders.”
Currently, the fee for purchasing and redeeming BFUSD is set at 0.1% and may be subject to change.
From November 27 to December 26, the fee will be zero.
Previously, Binance dismissed comparisons of BFUSD with Terra’s algorithmic stablecoin UST.
Earlier, similar parallels with UST were drawn for USDe by Ethena Labs. At launch, the community questioned the viability of the “synthetic dollar,” partly due to potential yield inversion.
On August 5, amid market turbulence, the redemption volume of the “synthetic dollar” by its issuer Ethena Labs exceeded $100 million. The token maintained its peg to the USD.