Interest-earning stablecoin YLDS approved by SEC, ushering in a new era of stablecoin yields

The U.S. Securities and Exchange Commission (SEC) recently approved the first interest-bearing stablecoin YLDS launched by Figure Markets. This decision not only marks the recognition of regulatory authorities for crypto financial innovation but also indicates that stablecoins are transitioning from mere payment tools to compliant yield-generating assets. This could open up broader development space for the stablecoin sector, making it another innovative field that can attract large-scale institutional funds following Bitcoin.

Reasons for SEC Approval of YLDS

In 2024, a large stablecoin issuer's annual profit reached as high as 13.7 billion USD, even surpassing the profits of traditional financial giants. These profits mainly come from the investment returns of reserve assets (primarily U.S. Treasury bonds), but are unrelated to stablecoin holders. This is precisely the breakthrough that interest-bearing stablecoins are targeting.

The core of interest-bearing stablecoins lies in the "redistribution of asset income rights". It not only maintains stability but also allows holders to directly enjoy the income by tokenizing the rights to the underlying asset's income. This "holding coins to earn interest" model makes capital gains accessible without thresholds, achieving "democratization of income".

The reason why YLDS has obtained SEC approval is that it complies with current U.S. securities regulations. As a systematic regulatory framework for stablecoins has not yet been established, the regulation of stablecoins in the U.S. is currently mainly based on existing laws. YLDS, a yield-generating interest-bearing stablecoin, has a structure similar to traditional fixed income products and clearly falls under the category of "securities", with no regulatory disputes.

Although the approval of YLDS indicates that the U.S. cryptocurrency regulatory attitude continues to improve, this cannot change the regulatory difficulties faced by traditional stablecoins in the short term. The industry generally expects that the U.S. stablecoin regulatory bill may gradually be implemented in the next 1 to 1.5 years.

YLDS distributes the interest income of underlying assets to holders through smart contracts, and binds the distribution of income to compliant identities through a strict KYC verification mechanism. These compliance designs provide a reference for similar projects in the future. In the next 1-2 years, more compliant interest-bearing stablecoin products may emerge, encouraging more countries and regions to consider the development and regulation of interest-bearing stablecoins.

The Rise of Interest-earning Stablecoins Accelerates the Institutionalization of the Crypto Market

The SEC's approval of YLDS indicates that stablecoins may evolve from "cash substitutes" into a new type of asset that combines the dual attributes of "payment tools" and "yield tools," and will accelerate the institutionalization and dollarization of the cryptocurrency market.

Interest-bearing stablecoins not only generate stable returns but also improve capital turnover through intermediary-free and round-the-clock on-chain transactions, offering significant advantages in capital efficiency and instantaneous settlement capabilities. Some research institutions have pointed out that hedge funds and asset management firms have begun to incorporate stablecoins into their cash management strategies, and the approval of YLDS will further enhance institutional investors' acceptance and participation.

The large-scale influx of institutional funds will drive rapid growth in the interest-bearing stablecoin market. Analysts expect that interest-bearing stablecoins will see explosive growth in the next 3-5 years, capturing about 10-15% of the stablecoin market and becoming another category of crypto assets that can attract significant institutional attention and investment, following Bitcoin.

The rise of interest-bearing stablecoins will further consolidate the dominance of the US dollar in the crypto world. Currently, the sources of yield for interest-bearing stablecoins on the market mainly fall into three categories: investment in US Treasuries, blockchain staking rewards, or structured strategy returns. Although some synthetic US dollar stablecoins may achieve success in 2024, interest-bearing stablecoins backed by US Treasuries will still be the preferred choice for institutional investors in the future.

Despite the rapid de-dollarization of the physical world, the digital on-chain world continues to gravitate towards the US dollar. Whether it is the widespread use of dollar stablecoins or the tokenization wave initiated by Wall Street institutions, the influence of dollar assets in the crypto market is continuously strengthening, and this trend of dollarization is being reinforced.

The SEC's approval of YLDS indicates that U.S. regulators have given the green light for interest-bearing stablecoins linked to U.S. Treasury bonds, which will attract more projects to launch similar products. Although the revenue model for interest-bearing stablecoins may become more diversified in the future, with reserve assets potentially expanding to more types of tangible assets such as real estate, gold, and corporate bonds, U.S. Treasury bonds will still dominate the underlying asset pool of interest-bearing stablecoins as a risk-free asset.

Conclusion

The approval of YLDS is not only a regulatory breakthrough in crypto innovation but also a milestone in the democratization of finance. It reveals the eternal demand in the market for "money making money." With the improvement of regulatory frameworks and the influx of institutional funds, interest-bearing stablecoins may reshape the stablecoin market and enhance the dollarization trend of crypto financial innovation. However, this process also requires a balance between innovation and risk to avoid repeating past mistakes. Only in this way can interest-bearing stablecoins truly achieve the goal of "allowing everyone to earn stable returns."