At the recent Token2049 conference in Singapore, BitGo, a prominent crypto custody firm, unveiled plans to launch a dollar-backed stablecoin, USDS, in 2025. This new offering aims to carve out a unique niche in the crowded stablecoin market by introducing a rewards system for institutions that contribute liquidity to the network.
USDS will be backed by short-duration Treasury bills, overnight repos, and cash, similar to other stablecoins. However, BitGo's CEO, Mike Belshe, emphasized that the primary motivation for launching USDS is to foster a more open and fair financial ecosystem. "The main reason for launching USDS is that, while existing stablecoins serve a good function, we see an opportunity to create a more open and fair system that promotes innovation and, most importantly, rewards those who build the network,” he stated in an interview with CoinDesk.
The standout feature of USDS is its rewards-based approach. Institutions providing liquidity to the USDS network will receive a portion of the returns generated from the asset reserves. “At the end of each month, we generate some return from the cash being held in the underlying fund, and we will pass it back to the participants on a pro-rata basis, based on their custody of the asset," Belshe explained. This system is designed to encourage participation and increase liquidity, which are essential for a stablecoin’s success.
Belshe acknowledges that this model raises questions about classification as an investment contract. However, he distinguishes USDS's approach from yield-bearing stablecoins that reward end users. Instead, rewards will be distributed solely to the institutions providing liquidity, potentially sidestepping regulatory hurdles faced by other projects.
The stablecoin market is currently dominated by Tether's USDT, with a market capitalization of approximately $119 billion, followed by Circle's USDC at around one-third of that size. By implementing its unique rewards structure, BitGo hopes to attract institutions and achieve a target of $10 billion in assets held within USDS by this time next year.
BitGo's USDS aims to not only enhance the utility of stablecoins but also to create a more inclusive financial ecosystem. With a focus on rewarding liquidity providers and navigating regulatory landscapes, BitGo could set a new precedent in the stablecoin arena, potentially reshaping the way institutions interact with digital currencies. As the project progresses, it will be interesting to see how USDS is received in a competitive market.
September 2024, Cryptoniteuae