‘Not a Stablecoin’, Binance BFUSD Concerns Addressed After Terra Stablecoin Comparisons

Binance has confirmed that the BFUSD is not a stablecoin. This comes after comparisons were made between Binance BFUSD’s high yield and Terra’s algorithmic stablecoin collapse in 2022. After a wave of tweets and comments on social media asking what BFUSD was, Binance didn’t hesitate to shut down misinformation. They pointed out that BFUSD is a margin product not a stablecoin.

What Then Is Binance BFUSD?

In a statement, Binance Customer Support said: “BFUSD is not launched yet. To make things clear, it isn’t a stablecoin but rather a reward-bearing margin asset of futures trading.” Stablecoins are pegged to a value, BFUSD will offer high yield for traders without the need to stake or lock up their capital.

According to Binance, BFUSD will live in the margin trading environment. Traders will store BFUSD in a Unified Margin wallet and receive daily airdrops based on their VIP level. That VIP level will also determine the amount of BFUSD available to that trader.

Social Media Comparisons to Terra

BFUSD was trending on X, with users comparing its yield to Terra’s failed algorithmic stablecoin. In 2022, one TerraUSD, promising 20% annual yield via Anchor protocol, collapsed and wiped out $18 billion in value.

Pseudonymous trader RunnerXBT said “How. how much did Anchor. did. Yield?” referencing the similarities between Terra’s high promises and Binance’s BFUSD announcement. Another said “Are we the yield?” referring to unsustainable models.

Lessons from Terra

The TerraUSD collapse was a big moment in DeFi history because it showed and told us how algorithmic stablecoins with unsustainable yields are a danger. Terra’s LUNA token which was supposed to be used to maintain UST’s peg also lost 99% of its value during the crisis and many investors lost money.

Binance has taken preemptive measures to make sure BFUSD doesn’t fall into the same controversy. By clarifying that BFUSD is not pegged to any asset, they hope to avoid the pitfalls of algorithmic stablecoins.

Binance BFUSD Community Reaction  is still split. Some traders love the high yield, others hate new products. In this case transparency will be key for Binance and thus BFUSD.

Veteran Bitcoiner Jameson Lopp who has been through many cycles said, “The key will be if Binance can deliver without overextending its business model”

Conclusion 

Binance BFUSD is a new product in their ecosystem, allowing traders to earn rewards non-custodial. But the Terra comparison reminds us two very important things: clarity and sustainability is key in crypto. With BFUSD coming out soon, they need to walk the tightrope between a very sceptical community and a very high bar as a global exchange.

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