The interest-bearing stablecoin YLDS has been approved by the SEC, ushering in a new era of stablecoin yields.

The U.S. Securities and Exchange Commission (SEC) recently approved Figure Markets' launch of the first interest-bearing stablecoin, YLDS. This move not only reflects the regulatory body's recognition of innovation in crypto finance but also signifies that stablecoins are transitioning from mere payment tools to compliant yield-bearing assets. This could open up broader development opportunities for the stablecoin sector, making it another innovative field capable of attracting large-scale institutional funds after Bitcoin.

Reasons for SEC Approval of YLDS

In 2024, a well-known stablecoin issuer's annual profit reached 13.7 billion USD, surpassing some traditional financial giants. This profit mainly comes from the investment returns of reserve assets (primarily U.S. Treasury bonds), but holders are unable to benefit from it. 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". Compared to traditional stablecoins, interest-bearing stablecoins allow holders to directly enjoy returns by tokenizing the income rights of the underlying assets while maintaining stability. This "holding coins to earn interest" model lowers the participation threshold and realizes "democratization of returns".

Although transferring the underlying asset yields will reduce the profits of the issuing institutions, it significantly enhances the attractiveness of interest-bearing stablecoins. In the current context of global economic instability and high inflation levels, the demand for financial products that can provide stable returns is constantly increasing. Products like YLDS, which are both stable and can offer yields higher than traditional bank rates, will undoubtedly be favored by investors.

The key to the SEC's approval of YLDS lies in its compliance with current U.S. securities regulations. Since no systematic regulatory framework for stablecoins has been established yet, the regulation of stablecoins in the United States mainly relies on existing laws. YLDS, a yield-generating interest-bearing stablecoin, has a structure similar to traditional fixed-income products, clearly falls under the category of "securities," and can therefore be included in the SEC's regulatory scope.

Although the approval of YLDS indicates a continued positive attitude towards cryptocurrency regulation in the United States, it cannot change the regulatory challenges faced by traditional stablecoins in the short term. The industry generally expects that the stablecoin regulatory legislation in the United States may gradually be implemented in the next 1 to 1.5 years.

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

The Rise of Interest-Bearing Stablecoins Accelerates Institutionalization of the Cryptocurrency Market

The SEC's approval of YLDS not only demonstrates the open attitude of U.S. regulators, but also indicates that stablecoins may evolve from "cash alternatives" into a new type of asset with dual attributes of both "payment tools" and "yield tools", which will accelerate the institutionalization and dollarization of the cryptocurrency market.

Traditional stablecoins meet the demand for cryptocurrency payments, but due to the lack of interest income, most institutions only use them as short-term liquidity tools. Interest-bearing stablecoins can generate stable returns and improve capital turnover through intermediary-free and round-the-clock on-chain transactions, providing significant advantages in capital efficiency and instant settlement capabilities.

The massive influx of institutional funds will further drive the rapid growth of the interest-bearing stablecoin market. Research institutions are optimistic that interest-bearing stablecoins will experience explosive growth in the next 3-5 years, capturing about 10-15% of the stablecoin market, becoming another category of cryptocurrency assets that can attract significant institutional attention and funding after BTC.

The rise of interest-bearing stablecoins will further solidify 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 Treasury bonds, blockchain staking rewards, and structured strategy returns. Although certain synthetic dollar stablecoins may achieve success in 2024, we believe that interest-bearing stablecoins backed by US Treasury bonds will still be the preferred choice for institutional investors in the future.

Although the physical world is accelerating the process of de-dollarization, the digital on-chain world continues to align with the US dollar. Whether it is the widespread use of dollar stablecoins or the wave of tokenization initiated by Wall Street institutions, the influence of dollar assets in the cryptocurrency market is continuously strengthening, and this trend of dollarization is being reinforced.

The likelihood of a short-term reversal of this trend is relatively low, as there are currently no more alternative options besides dollar assets represented by U.S. Treasury bonds for tokenized innovation and the cryptocurrency financial market. The SEC's approval of YLDS indicates that U.S. regulators have given the green light for dollar-denominated interest-bearing stablecoins, which will undoubtedly attract more projects to launch similar products.

Conclusion

The approval of YLDS is not only a compliance breakthrough in crypto innovation but also a milestone in the democratization of finance. It reveals the market's eternal demand 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 in crypto financial innovation. However, this process also requires balancing innovation and risk to avoid repeating past mistakes. Only in this way can interest-bearing stablecoins truly achieve the goal of allowing more people to share in financial gains.