Last week, Binance previewed the launch of a new product 'BFUSD', claiming 'annualized yields (APY) of up to 19.55%', reminiscent of the collapsed TerraUSD (UST), which caused quite a stir in the crypto community, prompting Binance to clarify that 'BFUSD is not a stablecoin'. A week later, Binance officially announced that BFUSD will go live tomorrow (27th), along with a more detailed product introduction.

According to Binance's official explanation, BFUSD is a 'interest-earning margin asset', allowing users to use it as margin in U-based contract trading, and simply holding BFUSD in the contract account earns passive income.

Built for contract traders

Binance points out that the core design of BFUSD allows users to enjoy both stable 'Base Annualized Yield Rewards (Base APY)' and higher 'Boosted Annualized Yield Rewards (Boosted APY)'. The announcement stated:

Users holding BFUSD in Binance's contract wallet will be eligible for 'daily rewards calculated based on the daily interest rate in USD stablecoins'; if users actively trade U-based (USDC, USDT) contracts daily, they will qualify for higher enhanced interest rate rewards.

The highlights of this product lie not only in its stable returns but also in the flexibility of contract trading. For users accustomed to trading U-based contracts on Binance, BFUSD will become an efficient asset allocation tool, allowing funds to 'easily earn while lying down' even amidst trading.

According to Binance's historical data, during the period from November 20 to 25, the base annualized yield for BFUSD ranged from 12% to 35%; while the enhanced annualized yield was as high as 15% to 47%. However, since BFUSD has not officially launched yet, these figures remain unverified by third parties.

It is noteworthy that Binance clearly states, 'BFUSD is not a stablecoin', and cannot be withdrawn from the Binance contract wallet or freely traded on the market; it can only be used as margin for contract trading, but can be exchanged for USDT at any time.

BFUSD Reserve Fund

To cope with market fluctuations, Binance has set up a 'BFUSD Reserve Fund' with an initial capital of 1 million USDT, serving as a buffer fund to function in adverse market conditions such as negative funding rates.

The reserve fund will obtain a portion of the daily rewards from BFUSD, continuously replenishing funds, growing in proportion to BFUSD's investment and hedging strategies, ensuring users are protected from negative funding rates.

Source of reward funds

The rewards generated by BFUSD are funded by Binance's investment and hedging strategies, mainly including Delta hedging and staking Ethereum ($ETH). These investment and hedging strategies can create passive income to provide rewards for BFUSD holders.

Delta Hedging: Binance employs a Delta neutral strategy to hedge crypto assets (like Ethereum) between the spot and contract markets, including offsetting positions to minimize the impact of price fluctuations, obtaining funding costs in market conditions with lower risk.

Staking Ethereum: Binance uses the sales proceeds of BFUSD to purchase crypto assets (such as Ethereum), and then stakes these assets to earn returns. This staking income will be used to provide rewards for BFUSD holders.

Bull Market Boost: Significant increase in earning potential

Binance cited data from the past year indicating that the Ethereum/USDT trading pair has had 350 days of positive funding rates; since the launch of Binance's contract platform in 2019, quarterly funding rates have mostly been positive. This market environment provides a strong foundation for stable returns from BFUSD.

The current bull market has further pushed up funding rates. Binance states that during bull markets, the funding rates paid by longs to shorts are often higher, thereby boosting the earnings level of BFUSD holders. This is undoubtedly a significant benefit for investors looking to achieve higher returns in a stable environment.

To celebrate the launch of BFUSD, Binance is launching a limited-time event

The purchase and redemption fee for BFUSD is currently set at 0.1%, but during the event period from November 27 to December 26, all users purchasing BFUSD will be exempt from fees; users holding BFUSD and trading contracts will enjoy an additional 10% annualized yield; additionally, the first 9,000 registered participants in the event who meet the minimum BFUSD holding requirements will be eligible to share a reward pool of 60,000 USDT.

[Disclaimer] The market has risks, and investments should be made cautiously. This article does not constitute investment advice; users should consider whether any opinions, viewpoints, or conclusions in this article align with their specific circumstances. Invest at your own risk.

  • This article is reprinted with permission from: (Blockcast)

'Annual returns can reach 47%! What is Binance BFUSD's interest rate margin? A simple introduction at a glance' This article was first published in 'Crypto City'