USDL: Democratizing Yield Safely Using Stablecoins

The introduction and rise of stablecoins across financial markets is one of the most compelling developments in crypto. The outstanding supply of stablecoins has grown from less than $3B five years ago to over $150B today, and active address holding stablecoins are the highest they have ever been. This demonstrates broad traction for stablecoins and shows the potential for them to be one of the most compelling use cases of cryptocurrency. 

Stablecoins provide tangible benefits worldwide, such as expanding access to US dollars across the world, enabling cheap payments and streamlining cross border transfers. Yet despite their popularity, we have seen little innovation in the incentive structure of stablecoins, with end customers not benefiting from the billions of dollars of annual interest generated by the dollars held in reserve.

The stablecoin model is evolving

The most popular stablecoins today are traditional stablecoins that are pegged to the US dollar (USD) at a 1:1 ratio and fully collateralized by US Treasury bills, bonds, overnight repo and cash. These investments in US treasuries generate a yield that tracks the current Secured Overnight Financing Rate (around 5.3%). This represents billions of dollars of income from investing the $150B+ of customer funds. However, almost none of this value is passed on to the distributors and end users.

This results in a few challenges:

1. Levies a tax on the system, slowing adoption: Stablecoin users will forgo over $7bn of potential income in 2024. This de facto tax on stablecoins is slowing their adoption and the broader blockchain-enabled financial future.

2. Fosters risky yield products: While the broader DeFi ecosystem is fraught with offers of high yield, these options are often high-risk, opaque and have led to the failure of numerous firms. Access to safe yield instruments is restricted to a subset of qualified individuals, and this means that a majority of the stablecoins users today have a choice between a) not earning any yield b) using risky DeFi investments.

3. Safe yield comes at the cost of speed and flexibility: For investors that have access to money market funds, they need to swap back and forth between crypto and fiat dollars to optimize income, and are restricted in what they can do from holding period restrictions.

Unlike conventional stablecoins, yield-bearing stablecoins offer token holders programmatic and direct access to the interest rate that tracks against what is available via US Treasury bills, maximizing capital efficiency while enabling seamless use across payments and saving use cases.

While there have been a few attempts to create a yield-bearing stablecoin-like product, they are issued by unregulated entities, leverage risky DeFi investments, require asset lockup, gamification or other unnecessary hoops. None have been able to deliver all the necessary ingredients for broad adoption — ease, trust and utility.

Introducing Lift Dollar (USDL) 

Today, we are excited to announce Lift Dollar (USDL), the world’s first yield-bearing stablecoin issued by a prudentially-regulated entity, which offers one of the highest levels of safety and security of any in the market to date.

Lift Dollar (USDL) is a US dollar-backed stablecoin on the Ethereum blockchain that programmatically provides daily yield to eligible wallets holding the token. USDL is issued by Paxos International – a Paxos affiliate company, regulated in the Abu Dhabi Global Market (ADGM) by the Financial Services Regulatory Authority (FSRA).

USDL offers safe, effortless, daily yield to end customers while maintaining a level of trust and transparency that is higher than any other stablecoin issuer.

“USDL offers safe, effortless, daily yield to end customers while maintaining a level of trust and transparency that is higher than any other stablecoin issuer.”

USDL is an ERC-20 token that distributes yield through a daily rebasing mechanism embedded in the smart contract. Rebasing was chosen as an efficient, scalable approach to distributing yield. Yield is generated on a portion of the token’s reserves that are invested in cash and cash equivalent assets. Rebasing, the act of increasing supply proportional to holdings which function as yield payments, occurs at a set interval (once daily in the case of USDL). Eligible token holders see their balance increase as a result of rebasing, which reflects the underlying yield generated on the asset. 

Finally, a stablecoin that works for everyone

Lift Dollar is the first stablecoin designed to benefit everyone — both retail customers and businesses — in a safe, prudentially-regulated manner. USDL offers unparalleled protection and stability by combining the utility of a stablecoin with the ease of earning daily automatic yield, while ensuring the safety of a prudentially regulated issuer with transparent reserve management.

This makes USDL particularly compelling for anyone who lives with an unstable home currency. Now, instead of leveraging USD stablecoins to only retain value, they can hold a stable and secure asset with daily compounding yield so their assets grow each day.

By enabling holders of USDL to earn daily yield without any friction or minimums, enterprises can utilize USDL to improve and mobilize treasury reserves automatically and seamlessly. This will result in greater adoption of stablecoins, expand access, and deliver value to both enterprises and end customers.

We expect stablecoins to grow to trillions of dollars of outstanding supply and hundreds of trillions of dollars in annual transaction value, while providing financial services to the global unbanked and underbanked. While widespread adoption will play out over years, many major use cases are primed for disruption right now, and USDL will accelerate this adoption.

Paxos’ vision is to create a more democratic, inclusive and accessible financial system. With USDL, we are excited to deliver on this vision, while moving the stablecoin industry forward and enabling broader adoption. We are excited to partner with the broader ecosystem to drive growth of USDL through issuance on more chains, availability across more venues and enabling real world use cases. By bringing more products like USDL in the market, we will continue delivering on our commitment of revolutionizing the global financial market through reliable and trusted blockchain offerings.

Disclaimers and restrictions

This blog post is not for publication or distribution, directly or indirectly, in or into the United States of America (including its territories and possessions, any state of the US and the District of Columbia) or in the United Arab Emirates (except ADGM). This announcement is not an offer of securities for sale into the US.

No public offering of securities is being made in the US.USDL, Paxos’s International platform, or any other services, such as purchase, redemption, transfer or sale, are not available to residents of the United States and other restricted jurisdictions. The full list of restricted jurisdictions can be found here.

To learn more about USDL and how yield-bearing stablecoins can help your network flourish, contact us.