Crypto custody firm BitGo is set to disrupt the stablecoin market with the introduction of USDS, a dollar-backed stablecoin that offers rewards to institutions providing liquidity to the network.
USDS, which is scheduled for launch next year, aims to differentiate itself from the crowded stablecoin market by incentivizing liquidity providers. Unlike other stablecoins, which are primarily backed by short-duration Treasury bills, overnight repos, and cash, USDS will feature an open-participation model.
“We see an opportunity to create a more open and fair system that promotes innovation and rewards those who build the network,” said BitGo CEO Mike Belshe. “A stablecoin’s true value comes from the people using it, the liquidity they provide, and the access points for interchange.”
The stablecoin market is currently dominated by Tether’s USDT and Circle’s USDC, with a combined market cap of over $150 billion. BitGo’s USDS aims to carve out a niche by offering a rewards-based approach.
By distributing a portion of the returns generated from its reserves to liquidity providers, BitGo hopes to attract institutions to the USDS network. This incentivization strategy is designed to foster a more vibrant and sustainable ecosystem.
“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,” Belshe explained.
While this rewards-based approach might raise concerns about whether it constitutes an investment contract, BitGo maintains that it is distinct from traditional dividend-paying investments. The rewards are distributed to institutions providing liquidity, not to end users.
Other stablecoin projects have attempted to create yield-bearing stablecoins but have faced regulatory challenges in the United States. BitGo’s approach aims to address these issues by targeting institutions and avoiding direct rewards to end users.
Also Read: DeFi Giant MakerDAO Sever Ties With BitGo Over Custody Concerns
BitGo plans to list USDS on major exchanges and aims to reach $10 billion in assets held within the stablecoin by next year. The launch of USDS could potentially reshape the stablecoin landscape and offer new opportunities for institutions seeking to participate in the cryptocurrency market.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
About The Author
