What is BFUSD: an innovative product or the "new TerraUSD"?

Each digital asset is endowed with certain, usually identical functions: native cryptocurrencies, for example, pay network commissions, and stablecoins maintain a peg to the exchange rate of a currency or other exchange-traded asset.

However, the famous exchange Binance has released its digital assets with unique features never seen in the crypto market. We are talking about the new token Binance Futures USD.

What is BFUSD?

BFUSD or Binance Futures USD is a high-yield margin futures trading product released by Binance, the largest crypto exchange on the market, in November 2024. The BFUSD token was explicitly issued for users of the Binance Futures financial product.

Despite its name, BFUSD is not a stablecoin and is not tied to the exchange rate of any other asset, even though its price is $1.

Binance has officially confirmed that BFUSD is not a stablecoin, which means that its rate may adjust up or down over time.

Despite being issued by the largest exchange in the crypto industry, as of January 2025, the token is not yet listed on the CoinMarketCap monitoring service. Any other asset with the same name is a fake. It is worth remembering that users can independently issue their tokens with any name, speculating on their similarity to the original digital assets.

In addition, Binance does not provide detailed information about the token itself: it is not even known on which blockchain the asset is issued and its actual issuance. As of January 2025, the BFUSD token is more like security, only unregulated, and it allows the exchange to perform any actions with it, including illegal ones, without any legal protection for investors.

BFUSD token functions

The functionality of the BFUSD token has features that cannot be found in every digital asset.

• Yield. According to the Binance exchange team, BFUSD token holders receive income generated based on some of the company's hedging strategies, such as delta hedging, Ethereum (ETH) staking, and daily interest rates (similar to interest payments on deposits). Users simply need to store their BFUSD tokens in the Binance USDⓈ-M Futures wallet to generate income.
• Collateral. Users can use BFUSD tokens as collateral for margin trading on the Binance exchange. The BFUSD tokens themselves will provide additional income for investors, giving BFUSD token traders additional flexibility in margin trading.
• Investor protection. Binance provides a reserve fund to protect investors from the impact of possible negative funding rates or credit risks and resulting losses. Initially, the fund amounted to $1 million, but it will grow over time. According to Binance's official website, as of January 2025, the reserve fund's size was $7.8 million.

Criticism of BFUSD

The crypto community criticized the digital asset BFUSD, released by the crypto exchange almost immediately after its appearance on the market. Some users drew parallels with the infamous Terra project, whose tokens (LUNA and UST) crashed, leading to a massive collapse in the crypto market in May 2022.

The main reason for criticizing the BFUSD token was erroneous media reports about plans to issue a stablecoin yield of 19.55% per annum — this reminded the community of the Terra situation. Risks also increase due to the lack of transparency: the Binance exchange does not disclose information on how exactly the yield of BFUSD is generated.

The crypto community's most significant doubts are caused by the suspiciously high yield for BFUSD holders, which reached 47% per annum at one point, as evidenced by data from the token's page on the official Binance website.

Even the yield of the failed Anchor Protocol, the key platform of the collapsed Terra ecosystem, barely exceeded 20%. At the same time, the Binance exchange itself does not disclose the details of the yield mechanism for BFUSD holders, and crypto investors warn users about the high risks of investing in such assets.

Conclusion

Despite the criticism and possible risks associated with the digital asset, BFUSD has advantages. For example, unlike direct ETH staking, users do not need to lock their tokens for a certain period: investors can exchange BFUSD for USDT anytime.

In other words, BFUSD performs a dual function: the asset continues to generate income even if it is currently pledged, provided the collateral has not been liquidated.