BitGo Plans to Introduce Rewards-Based USDS Stablecoin Next Year

SINGAPORE — BitGo plans to introduce a dollar-backed stablecoin next year, differentiating itself in a crowded market by offering rewards to institutions

Crypto custody firm BitGo announced plans to introduce a dollar-backed stablecoin next year at Token2049 in Singapore.

The stablecoin, called USDS, will be backed by short-duration Treasury bills, overnight repos, and cash, like others on the market. However, BitGo is differentiating its stablecoin by offering rewards to institutions that provide liquidity to the network.

The stablecoin's value is pegged to the fiat currency to stabilize its price, making it a popular choice for crypto trading and providing most of the liquidity in decentralized finance (DeFi).

The biggest stablecoins are tied to the U.S. dollar, a market that's dominated by Tether's USDT, which has a market cap of about $119 billion. The No. 2, Circle's USDC, is about a third of the size.

BitGo's stablecoin will differ from its rivals with its rewards-based approach, which will incentivize institutions that are providing liquidity to the USDS network by distributing a portion of the returns generated from its reserves.

“A stablecoin’s true value comes from the people using it, the liquidity they provide, and the access points for interchange,” said BitGo CEO Mike Belshe in an interview with CoinDesk before his keynote at Token2049.

According to Belshe, the company will generate some return from the cash being held in the underlying fund at the end of each month and pass it back to the participants on a pro-rata basis, based on their custody of the asset.

This approach might sound like it is treading dangerously close to being a dividend and thus classifying the whole operation as an investment contract, but Belshe says the difference lies in that it's not distributing the proceeds to the end user, but rather to the institutions providing the liquidity.

Other stablecoins have tried creating yield-bearing stablecoins and rewarding end users. But as a compromise, they've needed to exclude the U.S. from the available markets.

“You end up with either the folks that opt into only the U.S. market, and then the folks that opt into only the non-U.S. market, like Mountain Protocol or Lift Dollar out of Dubai. They can't sell in the United States because they are a security,” said Belshe.

BitGo plans to list USDS on all major exchanges and is targeting $10 billion in assets held within the stablecoin by this time next year.