BitGo to Enter Stablecoin Market With Reward-Bearing USDS Coin

As a seasoned researcher with over two decades of experience in the ever-evolving world of finance and technology, I find BitGo’s upcoming stablecoin, USDS, to be an intriguing development. Having witnessed the growth of stablecoins from their infancy, I can appreciate the innovative approach that BitGo is taking by offering rewards for liquidity provision.

SINGAPORE — BitGo plans to introduce a dollar-backed stablecoin next year, differentiating itself in a crowded market by offering rewards to institutions that provide liquidity to the network, the crypto custody firm announced at Token2049 in Singapore.

As an analyst, I can share that the new stablecoin, known as USDS, is designed to mirror other coins in the market by being backed by short-term Treasury bills, overnight repurchase agreements (repos), and cash. Notably, this coin is distinguished as BitGo’s first open-participation stablecoin.

In a conversation with CoinDesk prior to his speech at Token2049, CEO Mike Belshe expressed that USDS was initiated because while current stablecoins serve useful purposes, there’s potential to establish a more transparent and equitable platform that encourages innovation. Crucially, he emphasized that the worth of a stablecoin lies not just in its inherent value, but also in the user base that contributes liquidity, fosters exchange access points, and rewards those who contribute to the network’s development.

A stablecoin is a type of cryptocurrency whose value is pegged to another asset class, such as a fiat currency or gold, to stabilize its price. They are used widely in crypto trading and provide most of the liquidity in decentralized finance (DeFi).

The largest cryptocurrencies are pegged to the U.S. dollar and the market for these is predominantly controlled by Tether’s USDT, which has a market capitalization of approximately $119 billion. Circle’s USDC, in comparison, is roughly one-third the size.

BitGo distinguishes itself from competitors through its rewards system, encouraging institutions contributing liquidity to the USDS network by sharing a percentage of the earnings generated from its reserve funds.

At the close of every month, earnings are produced from the money kept in the base fund, and these profits are then distributed evenly among the participants according to the quantity of assets they hold in trust for them, as stated by Belshe.

Although it may appear to be on the border of being considered a dividend, thereby classifying the entire operation as an investment contract, Belshe explains that the distinction lies in the fact that the profits are not being passed on directly to the end users, but instead to the entities supplying the liquidity.

Other types of stablecoins have attempted to generate returns for their users while maintaining stability, but this has often meant restricting availability within the United States market.

He stated that there are two main groups: those who choose to operate solely within the U.S. market, and others who focus on markets outside of the U.S., such as Mountain Protocol or Lift Dollar from Dubai. These entities can’t sell in the United States because they are classified as securities.

BitGo intends to make USDS available on significant trading platforms, aiming to store a staggering $10 billion worth of it as a stablecoin by the same period next year.