BitGo to Launch USDS, a Reward-Bearing Stablecoin

Cryptocurrency custodian BitGo announced plans to launch a US dollar stablecoin, USDS, at the Token2049 conference in Singapore. The stablecoin aims to stand out in the crowded market by offering rewards to institutions providing liquidity.

USDS will be backed by short-term US Treasury bills, overnight repurchase agreements (repos), and cash, making it the first open-participation stablecoin, according to BitGo. The company expects to launch USDS in January 2025.

BitGo CEO Mike Belshe told CoinDesk:

"The main reason for launching USDS is that while existing stablecoins are great, we think there's an opportunity to create a more open and fairer system that promotes innovation, and most importantly, rewards the people who are building the network. The true value of a stablecoin comes from the people who use it, the liquidity they provide, and the access points to exchange."

Currently, the stablecoin market is dominated by Tether's USDT with a market capitalization of around $119 billion, followed by Circle's USDC at roughly $354 billion. Unlike its competitors, BitGo's USDS adopts a reward-based approach, incentivizing institutions to provide liquidity to the USDS network by distributing a portion of the returns generated from the stablecoin reserves.

Belshe explained: "At the end of every month, we'll earn some returns from the cash held in the underlying fund, and we'll allocate these returns proportionally to participants based on their custody of assets." He pointed out that this mechanism might seem similar to dividend payouts, potentially leading to the operation being classified as an investment contract, but the distinction lies in the fact that the returns are allocated to liquidity providers, not end users.

Other US dollar stablecoins have attempted to create yield-bearing stablecoins and reward end users. However, they've had to exclude the US market as a compromise, such as Paxos's Lift dollar (USDL).

BitGo's Tweet:

💸 Introducing $USDS

The first open-participation stablecoin to redefine financial freedom.

Built on a foundation of transparency, USDS empowers the community by democratizing the stablecoin experience and putting the power back in your hands.

🏦 1:1 USD Backing: USDS is fully… pic.twitter.com/pfzXWGZ1ze

— BitGo (@BitGo) September 18, 2024

This tweet highlights the key features of USDS, emphasizing its open-participation nature, transparency, and 1:1 USD backing.