Although the annual interest it generates is very high, the exchange pointed out that it cannot be withdrawn because it is not a stablecoin.
BFUSD is now the new coin of Binance, one of the largest crypto exchanges in the world. The exchange already allows the purchase and redemption of the token. Currently, along with its launch, the payment of a 14% annual return was announced as a base, although it clarifies that this value will not necessarily be maintained in the future.
Furthermore, while in practice it will be pegged to the US dollar, Binance clarified that it is not considered a stablecoin. This is because it is a token that cannot be withdrawn from the exchange, but is limited to the platform.
Binance distanced BFUSD from stablecoins or "crypto dollar"
Binance clarified that the token “is designed as a margin asset for futures trading, while offering passive rewards.” Regarding the yields paid, the interest comes from delta hedging and staking of ether (ETH), the digital currency of the Ethereum ecosystem.
It is also important to clarify that each Binance user, as stated on the website, “has a BFUSD quota limit, and the quota size is based on the user’s VIP level.”
Screenshot of the Binance platform, in the section dedicated to BFUSD. Source: Binance.
What are stablecoins?
These are cryptocurrencies whose value does not fluctuate, that is, they are stable over time. In addition, they can be withdrawn from any exchange freely and without restrictions. Among these, the following stand out:
Tether, the most popular stablecoin, is generally among the top five market caps for cryptocurrencies
USD coin, or USDC, an open source project run by a consortium called Centre
Binance USD, a stablecoin issued by Binance, the world's largest cryptocurrency exchange
The primary use of a stablecoin is to facilitate transactions on crypto exchanges. Instead of buying Bitcoin outright with fiat currency, such as the dollar, people often exchange fiat currency for a stablecoin and then execute a trade with the stablecoin for another cryptocurrency such as Bitcoin or Ethereum.
In this way, stablecoins are like poker chips for cryptocurrency exchanges. Each of the most traded stablecoins is associated with a specific exchange: Tether with Bitfinex; USD coin with Coinbase; BinanceUSD with Binance.
Although advanced crypto traders can use stablecoins for a variety of purposes, including staking and lending, most beginners use them to mitigate trading fees.
That's because many exchanges don't charge a fee for exchanging US dollars for a stablecoin. Coinbase, for example, doesn't charge any fees for transfers of USDC to US dollars.