SEC Approves Interest-Bearing Stablecoin YLDS, Opening a New Era of Stablecoin Yields

Recently, the U.S. Securities and Exchange Commission (SEC) approved Figure Markets to launch the first interest-bearing stablecoin YLDS. This move not only reflects the regulatory body's recognition of innovation in crypto finance but also indicates that stablecoins are transforming from mere payment tools into compliant yield-bearing assets. This could open up broader development space for the stablecoin sector, making it another innovative area that attracts large-scale institutional funds following Bitcoin.

Reasons for SEC Approval of YLDS

In 2024, a certain stablecoin issuer's annual profit reached as high as 13.7 billion USD, even surpassing the profits of traditional financial giants (approximately 12.9 billion USD). These profits mainly came from investment returns on reserve assets (primarily U.S. Treasury bonds), but they were unrelated to the holders, and users could not gain asset appreciation or investment returns through this stablecoin. This is precisely the breakthrough that interest-bearing stablecoins are focused on.

The core of interest-bearing stablecoins lies in the "redistribution of asset income rights": while maintaining stability, it allows holders to directly enjoy the returns by tokenizing the income rights of underlying assets. This model addresses the issue where traditional stablecoin users sacrifice the time value of their funds in exchange for stability. More importantly, interest-bearing stablecoins meet the needs of ordinary users: although traditional stablecoins can also generate returns through staking, the complex operations and security compliance risks hinder widespread adoption. Stablecoins like YLDS, which allow "holding coins to earn interest", make earning returns accessible without barriers, achieving true "democratization of returns".

Although shifting the underlying asset returns may reduce the profits of the issuing institutions, it has significantly increased the attractiveness of interest-bearing stablecoins. Especially in the current global economic instability and high inflation levels, the demand for financial products that can generate stable returns is continuously increasing among both crypto users and traditional investors. Products like YLDS, which are both stable and can provide returns far exceeding traditional bank interest rates, will undoubtedly become the preferred choice for investors.

However, the key to the SEC approving YLDS lies in its avoidance of the core regulatory controversy, complying with current U.S. securities laws. Since a systematic regulatory framework for stablecoins has not yet been established, the regulation of stablecoins in the United States currently relies mainly on existing laws. Different regulatory agencies have conflicting definitions of stablecoins, leading to a chaotic regulatory environment for stablecoins in the U.S. However, YLDS, as a yield-generating interest-bearing stablecoin, has a structure similar to traditional fixed-income products, and under the existing legal framework, it clearly falls within the category of "securities", which is not disputed. This is a prerequisite for YLDS to be included in SEC regulation.

Although the approval of YLDS indicates a continuous improvement in the U.S. regulatory attitude towards cryptocurrencies, it cannot change the regulatory dilemmas faced by traditional stablecoins in the short term. More changes are still needed, waiting for the U.S. Congress to formally pass the stablecoin regulatory bill, which is expected to gradually occur in the next 1 to 1.5 years.

YLD distributes the interest income of underlying assets (mainly U.S. government bonds, commercial papers, etc.) to holders through smart contracts, and binds the distribution of income to compliant identities through a strict KYC verification mechanism, reducing regulatory concerns about anonymity. These compliance designs provide a reference for other similar projects seeking regulatory approval. In the next 1-2 years, we may see more compliant interest-bearing stablecoin products emerging, prompting more countries and regions to consider the necessity of developing and regulating interest-bearing stablecoins.

For regions that have implemented regulations on stablecoins and regard stablecoins as payment instruments, when faced with interest-bearing stablecoins that clearly exhibit characteristics of securities, in addition to adjusting the existing regulatory framework, it may also be worth considering the inclusion of interest-bearing stablecoins under the regulatory scope of tokenized securities by restricting the types of underlying assets.

The Rise of Interest-Generating Stablecoins Accelerates the Institutionalization of the Crypto Market

The SEC's approval of YLDS not only demonstrates the open attitude of U.S. regulation but also indicates that stablecoins may evolve from "cash substitutes" to a new type of asset with dual attributes of "payment tools" and "yield tools" in the mainstream financial context, which will accelerate the institutionalization and dollarization process of the crypto market.

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

The large-scale influx of institutional funds will drive rapid growth in the interest-bearing stablecoin market, making it a more important part of the crypto ecosystem. Optimistically, interest-bearing stablecoins are expected to experience explosive growth in the next 3-5 years, capturing about 10-15% of the stablecoin market, becoming another crypto asset class that can attract significant institutional attention and investment after Bitcoin.

The rise of interest-bearing stablecoins will further consolidate the dominance of the US dollar in the crypto world. Currently, the yield sources of interest-bearing stablecoins on the market mainly fall into three categories: investment in US Treasury bonds, blockchain staking rewards, or structured strategy returns. Although some synthetic US dollar stablecoins have been successful in 2024, this does not mean that staking and structured strategies as yield sources will become mainstream. On the contrary, 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 its de-dollarization, the digital on-chain world continues to gravitate towards the US dollar. Whether through the large-scale adoption of US dollar stablecoins or the tokenization wave initiated by Wall Street institutions, the influence of US dollar assets in the crypto market is continuously strengthening, and this dollarization trend is being reinforced.

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

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: under the premise of controllable risks, the market's demand for "money making money" is eternally present. 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 needs to balance innovation and risk, avoiding past mistakes. Only in this way can interest-bearing stablecoins truly achieve the goal of "making it easy for everyone to earn returns."