Binance, the world’s largest cryptocurrency exchange, introduced BFUSD, an interest-paying “digital dollar.” The launch will be tomorrow, November 27 at 2:00 AM (UTC).
The asset operates similarly to a stablecoin, but company spokespersons were in charge of detailing its operation.
As Binance explained in a statement, “it is designed as a margin asset for futures trading, while also offering passive rewards.”
Likewise, he explained that the owners of the asset will be able to take advantage of a base annual rate of return (APY) that “accrues directly, even if you don’t trade futures.” In addition, it clarified that those who carry out qualifying activities in futures with margin in stablecoins will receive an increased APY that day.
It is important to note that BFUSD will be restricted in certain regions, such as the United States.
Since the launch of BFUSD was announced, some users on social media They compared it to Anchor, the lending and interest protocol developed by Terraform Labs. This platform paid returns of 20% annually to those who deposited UST.
However, as NoticiasVE reported, this platform generated returns, mainly, from the entry of new capital by users. For this reason, the model was unsustainable and a lawsuit indicated that it functioned as an alleged Ponzi scheme.
In this framework, and to silence these questions, Binance highlighted that BFUSD “is not a stablecoin” like USDT or USDC, which can be withdrawn and used on multiple platforms or markets. Its use is limited exclusively to Binance.
How does BFUSD generate returns?
Binance’s new asset generates returns through delta hedging (delta hedging) and ether (ETH) staking, the digital currency of the Ethereum ecosystem.
As for the delta hedgingthis is a technique that seeks to reduce the risk of fluctuations in the spot market, where assets are bought and sold at the current price, and futures. As reported, This technique allows price differences between markets to be balanced.
Likewise, it takes advantage of financing fees, that is, payments between traders of long and short positions in futures contracts. Paying these fees ensures that spot and futures market prices eventually converge.
“BFUSD is a margin asset that generates passive rewards for holders,” the spokespersons indicated.
Binance assures that there will be no losses
The exchange introduced measures to ensure that the APY never goes negative, even in bear markets. To make this possible, a Reserve Fund is created, which accumulates part of the profits generated in favorable times. to cover losses in periods with negative financing rates.
“In this way, in times of negative financing rate, users will not pay for the deficit, since it will be covered by the Reserve Fund,” they noted from Binance. In addition, they revealed that the initial fund is endowed with 1 million USDT, it will support hedging strategies and cover possible negative financing rates.
Although they did not indicate the exact percentage of the distribution between user rewards and allocations to the fund, they assured that there will be “enough to protect users.”
Regarding the purchase and exchange rates for BFUSD, they will be 0.1%, subject to change.
Finally, Binance reported that at launch, USDT will be the only supported asset for BFUSD transactions, meaning all purchases, rewards and redemptions will be denominated and paid in USDT.