BitGo, one of the creators of the popular Wrapped Bitcoin (WBTC), has announced plans to roll out a new stablecoin called USDS next year. Unlike other stablecoins, USDS will feature a unique reward system that incentivizes liquidity providers.
The new cryptocurrency will offer up to 98% of earnings to its ecosystem supporters.
Explaining the reason behind the reward system, BitGo CEO Mike Belshe pointed to the real value of a stablecoin.
The BigGo CEO said he believes the value comes from the people who use it, the liquidity they provide, and the accessible venues to trade it. USDS aims to create a more open and fair system that fosters innovation and rewards those who build the network.
Competing With Banks
Once launched, it will challenge major stablecoin issuers like Tether’s USDT and Circle’s USDC. USDT is leading the stablecoin market with over $117 billion in market cap. The company reported in July that its half-year profits exceeded $5 billion.
Unlike traditional stablecoins that may distribute profits to end users, USDS will reward liquidity providers directly. BitGo plans to allocate a portion of its reserve fund profits to participants based on their asset ownership.
While this reward model might resemble a dividend-paying company, BitGo insists that USDS is not an investment contract. The company argues that the rewards are distributed to liquidity providers, not end users, which differentiates it from other stablecoins.
“You end up with either the folks that opt into only the U.S. market, and then the folks that opt into only the non-U.S. market, like Mountain Protocol or Lift Dollar out of Dubai. They can’t sell in the United States because they are a security,” said Belshe.
A Huge Potential Market
BitGo was not the only firm that plans to enter the lucrative stablecoin market. This week, fintech company Revolut also revealed plans to launch its own stablecoin. The company seeks to expand its cryptocurrency services and capitalize on the growing demand for stablecoins.
Sources with knowledge of the matter said that Revolut’s stablecoin is currently under development. The upcoming product is expected to provide a safe and compliant haven for the crypto community.
Revolut, known as a top crypto-friendly fintech firm, offers multi-currency support, a secure integrated crypto exchange, and other crypto-related financial services. The move comes after the company secured a UK banking license in July.
The UK banking license could help the bank to drive many new crypto users. The license permits Revolut to offer new services, such as loans and mortgages, in the UK.
However, the company is currently in the mobilization stage, a phase for new banks to establish their operations fully. During this period, Revolut’s UK customers will continue banking with Revolut Ltd, a UK e-money institution regulated by the Financial Conduct Authority (FCA).
With the upcoming implementation of the Markets in Crypto-Assets (MiCA) regulation in Europe, there is a growing need for compliant stablecoins. MiCA provides a framework within which companies like Revolut can operate as long as they meet specific conditions for the issuance of stablecoins in the region.
Circle has been actively working towards MiCA compliance. Shortly after MiCA went live, the company announced that its USDC stablecoin had met the requirements of the regulation.
Other issuers, like Paxos and Gemini, have also stated that they are taking steps to ensure their stablecoins adhere to the regulatory framework.
In contrast, Tether, the largest stablecoin, has opted out of MiCA compliance, leading to USDT delistings on numerous European exchanges.
Explaining the decision, Tether CEO Paolo Ardoino said the reserve requirements outlined in the MiCA regulation, which requires stablecoin issuers to hold at least 60% of their reserves in European bank accounts, could pose huge risks.
Ardoino stated that many financial institutions operate under a fractional reserve banking model. This means that only a small portion of deposits are held in liquid assets, making them vulnerable to bank runs.
