Interest-bearing stablecoin YLDS approved: Opening a new era of stablecoin returns

The U.S. Securities and Exchange Commission (SEC) recently approved Figure Markets to launch the first interest-bearing stablecoin YLDS, marking the recognition of regulatory authorities for innovation in crypto finance. This also indicates that stablecoins are evolving from mere payment tools to compliant yield-generating assets. This could open up broader development opportunities for the stablecoin sector, making it another innovative area capable of attracting large-scale institutional funds following Bitcoin.

Background Analysis of SEC Approval for YLDS

In 2024, a well-known stablecoin issuer achieved an annual profit of up to $13.7 billion, surpassing some traditional financial giants. These profits mainly came from investment returns on reserve assets (primarily U.S. Treasury bonds), but are unrelated to ordinary holders. Users cannot gain asset appreciation and investment returns by holding this stablecoin, which is exactly what interest-bearing stablecoins hope to disrupt.

The core of interest-bearing stablecoins lies in the "redistribution of asset income rights": while maintaining stability, it allows holders to directly enjoy income by tokenizing the income rights of the underlying assets. This model addresses the pain points of most users: although traditional stablecoins can also generate income through staking, complex operations and security compliance risks hinder large-scale adoption. However, stablecoins like YLDS, which offer "hold-to-earn" features, make income generation accessible without barriers, achieving "democratization of income."

Although transferring the underlying asset income will reduce the profits of the issuing institution, it has significantly increased the attractiveness of interest-bearing stablecoins. In the context of global economic instability and high inflation, both on-chain users and traditional investors have a strong demand for financial products that can generate stable returns. Products like YLDS, which are both stable and can provide returns far exceeding traditional bank interest rates, will undoubtedly become favorites among investors.

The reason YLDS was able to obtain SEC approval lies in its compliance with the 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 primarily based on existing laws. Different regulatory agencies have varying definitions of stablecoins, leading to a chaotic regulatory landscape. However, YLDS, as an interest-bearing stablecoin that generates returns, has a structure similar to traditional fixed-income products and clearly falls under the category of "securities", which is not in dispute.

The approval of YLDS indicates that the attitude of U.S. cryptocurrency regulation is continuously improving, and regulatory agencies are actively adapting to the rapidly developing stablecoin and crypto financial markets. The regulation of stablecoins has shifted from "passive defense" to "active guidance." However, this cannot change the regulatory dilemmas faced by traditional stablecoins in the short term, and more changes will need to await the formal passage of stablecoin regulation legislation by the U.S. Congress. The industry generally expects that the U.S. stablecoin regulation legislation may be gradually implemented within the next 1 to 1.5 years.

YLD distributes the interest income of the underlying assets to holders through smart contracts, and uses a strict KYC verification mechanism to bind income distribution with compliant identities, reducing regulatory concerns about anonymity. These compliance designs provide a reference for subsequent similar projects seeking regulatory approval. In the next 1-2 years, more compliant interest-bearing stablecoin products may emerge, prompting more countries and regions to consider the necessity of developing and regulating interest-bearing stablecoins.

For regions that have implemented stablecoin regulations and consider stablecoins as payment tools, when faced with interest-bearing stablecoins that have securities attributes, in addition to adjusting the existing regulatory framework, it may also be considered to limit the types of underlying assets of interest-bearing stablecoins and bring them under the regulation of tokenized securities.

The Rise of Interest-earning Stablecoins Accelerates the Institutionalization of the Crypto 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 a "cash substitute" into a new type of asset that combines the dual attributes of "payment tool" and "yield tool," which will accelerate the institutionalization and dollarization of the crypto market.

Traditional stablecoins meet the demand for crypto payments, but due to the lack of interest revenue, most institutions only use them as short-term liquidity tools. In contrast, interest-bearing stablecoins can generate stable returns and improve fund turnover rates through intermediary-free and round-the-clock on-chain transactions, offering significant advantages in capital efficiency and instant settlement capabilities. Research institutions have pointed out that hedge funds and asset management firms have started to incorporate stablecoins into their cash management strategies. After YLDS receives SEC approval, it will further alleviate institutional compliance concerns and enhance the acceptance and participation of institutional investors.

The large-scale influx of institutional funds will drive rapid growth in the interest-bearing stablecoin market, making it an increasingly indispensable part of the crypto ecosystem. Research institutions optimistically predict that interest-bearing stablecoins will experience 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 capital 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 yields. Although certain synthetic dollar stablecoins have achieved significant success in 2024, this does not mean that staking and structured strategies as sources of yield will become mainstream. On the contrary, interest-bearing stablecoins backed by US Treasuries may still be the preferred choice for institutional investors in the future.

Although the real world is accelerating the process of de-dollarization, 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 US dollar assets in the cryptocurrency market is continually strengthening, and this trend of dollarization is being reinforced.

This trend is difficult to reverse in the short term, as there are currently no more alternative choices for tokenized innovation and the crypto financial market in terms of liquidity, stability, and market acceptance, other than dollar assets represented by U.S. Treasury bonds. The SEC's approval of YLDS indicates that U.S. regulators have opened the door for dollar-denominated interest-bearing stablecoins, which will undoubtedly attract more projects to launch similar products. Although the yield model for interest-bearing stablecoins may become more diversified in the future, with reserve assets potentially extending to more types of physical assets such as real estate, gold, and corporate bonds, U.S. Treasury bonds, as a risk-free asset, may still dominate the underlying asset pool of interest-bearing stablecoins.

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 a simple truth: the demand for "money making money" always exists under the premise of manageable risk. With the improvement of regulatory frameworks and the influx of institutional capital, interest-bearing stablecoins may reshape the stablecoin market and enhance the dollarization trend of crypto financial innovation. However, this process also needs to balance innovation and risk to avoid repeating past mistakes. Only in this way can interest-bearing stablecoins truly achieve the goal of "making it easy for everyone to earn returns."