(Bloomberg) — Yield-bearing stablecoins have long been on the wish list of many crypto market participants who use the tokens to facilitate billions of dollars in transactions daily.
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Now US investors can earn some passive income while entrusting a stablecoin issuer with their funds. Earlier this week, the Securities and Exchange Commission signed off on securities from Figure Certificate Co. that pay a return. The company says it’s the first yield-bearing stablecoin to be registered with the agency as a security.
Reserves backing the YLDs stablecoin, as it will be known, will be invested in securities such as Treasuries and commercial paper, according to Mike Cagney, chief executive officer of Figure Markets, headquartered in San Francisco and New York. Users of the stablecoin will receive the Secured Overnight Financing Rate minus 50 basis points, which will be accrued daily and paid monthly, he said. The SEC’s filing calls the stablecoins “certificates,” and they will be available for peer-to-peer transactions on the Provenance blockchain.
Stablecoins underpin much of the trading in crypto markets because of the inherent price volatility of most digital assets. Traders have been willing to sacrifice returns on their funds for price stability since stablecoins were first introduce during the era of near-zero interest rates a decade ago. Like YLDs, most stablecoins are linked to traditional fiat such as the dollar, and maintain reserves equal to the amount of the asset. Now with rates fairly high, earning comparable returns has become important to more investors.
Assets that earn the holder a return are usually consider a security by the SEC, subjecting the issuer to regulatory guidelines set by the agency. Tether, which says it earned $13 billion last year mostly from income earned off its reserves, doesn’t offer a yield on its USDT stablecoin.
Stablecoins are gaining momentum thanks in part to the Trump administration’s support. They were mentioned in the recent executive order on digital assets, which vowed to promote growth of dollar-backed stablecoins. Congress is working on stablecoin legislation, which would create a regulatory framework for the instrument. But it may be another six to 12 months before another yield-bearing stablecoin is designated as a security by the SEC, Cagney said.
