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

Recently, the U.S. Securities and Exchange Commission (SEC) approved Figure Markets' launch of the first interest-bearing stablecoin YLDS. This move not only demonstrates the regulatory body's recognition of innovations in crypto finance but also indicates that stablecoins are evolving from mere payment tools to compliant yield-bearing assets. This could bring more opportunities to the stablecoin sector, making it another innovative field to attract substantial institutional funding after Bitcoin.

Why did the SEC give YLD a green light?

In 2024, a well-known stablecoin issuer's annual profit reached as high as 13.7 billion USD, even surpassing traditional financial giant Mastercard (approximately 12.9 billion USD). These profits mainly come from the investment returns of reserve assets (such as U.S. Treasury bonds), but are unrelated to the holders, and users cannot achieve asset appreciation or investment returns through the stablecoin. This is precisely the breakthrough that interest-bearing stablecoins are aiming for.

The core of interest-bearing stablecoins lies in the "redistribution of asset income rights": while maintaining stability, it allows holders to directly enjoy returns by tokenizing the income rights of underlying assets. This model addresses the pain points of the "silent majority": although traditional stablecoins can also generate returns through staking, the complex operations and security compliance risks hinder large-scale user adoption. Stablecoins like YLDS, which offer "earnings by holding coins", make fund returns accessible without thresholds, achieving "democratization of returns".

Although transferring the underlying asset income will reduce the profits of the issuing institutions, it has significantly increased the attractiveness of interest-bearing stablecoins. In the current unstable global economic environment, with high inflation levels, both on-chain users and traditional investors are increasingly demanding financial products that can generate stable returns. Products like YLDS, which are both stable and can provide yields far exceeding traditional bank interest rates, will undoubtedly become popular choices for investors.

However, the main reason the SEC approved YLDS is that it avoided the core controversies of regulation and complies with current U.S. securities laws. As a systematic regulatory framework for stablecoins has yet to be established, the regulation of stablecoins in the U.S. is currently mainly based on existing laws. Different regulatory agencies have varying definitions of stablecoins, resulting in a chaotic situation regarding U.S. stablecoin regulation. YLDS, being a yield-generating interest-bearing stablecoin, has a structure similar to traditional fixed-income products and clearly falls under the category of "securities," which eliminates any disputes. This is the prerequisite for YLDS to be included under SEC regulation.

YLD distributes the interest income from underlying assets (mainly US Treasury bonds, commercial papers, etc.) to holders through smart contracts, and links the distribution of income with compliant identities through a strict KYC verification mechanism, reducing regulatory concerns about anonymity. These compliance designs provide a reference for subsequent similar projects seeking regulatory approval. In the next 1-2 years, we may see more compliant interest-bearing stablecoin products emerge, prompting more countries and regions to consider the development and regulatory issues of interest-bearing stablecoins.

The Rise of Interest-bearing Stablecoins Will Accelerate 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" into a new type of asset with both "payment tool" and "yield tool" attributes, which will accelerate the institutionalization and dollarization of the cryptocurrency market.

Traditional stablecoins, while meeting the needs of crypto payments, are primarily used by most institutions as short-term liquidity tools due to the lack of interest income. In contrast, interest-bearing stablecoins not only generate stable returns but also enhance capital turnover through intermediary-free and round-the-clock on-chain transactions, providing significant advantages in capital efficiency and instant settlement capabilities. A recent annual report from an investment institution pointed out that hedge funds and asset management firms have begun to incorporate stablecoins into their cash management strategies. After YLDS received SEC approval, it will further alleviate compliance concerns for institutions and increase institutional investors' acceptance and participation in such stablecoins.

The large-scale influx of institutional funds will further 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, becoming another category of crypto assets that can attract significant institutional attention and investment after BTC.

The rise of interest-bearing stablecoins will further solidify the dominance of the US dollar in the crypto world. Currently, the revenue sources of interest-bearing stablecoins on the market mainly fall into three categories: investing in US Treasury bonds, blockchain staking rewards, or structured strategy returns. Although synthetic US dollar stablecoins achieved success in 2024, becoming a major player in the interest-bearing stablecoin market, this does not mean that staking and structured strategies as sources of revenue 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 the process of de-dollarization, the digital on-chain world continues to gravitate towards the US dollar. Whether it is the widespread adoption of dollar stablecoins or the wave of tokenization driven by Wall Street institutions, the influence of dollar assets in the crypto market is continuously strengthening, and this trend of dollarization is being reinforced.

This trend is difficult to reverse in the short term, as there are no more alternatives at this stage for tokenized innovation and the crypto financial market, apart from dollar assets represented by U.S. Treasuries, in terms of liquidity, stability, and market acceptance. The SEC's approval of YLDS indicates that U.S. regulators have given the green light to interest-bearing stablecoins similar to U.S. Treasuries, which will undoubtedly attract more projects to launch similar products.

Conclusion

The approval of YLDS is not only a compliance 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 "making money with 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 of crypto financial innovation. However, this process must also balance innovation and risk to avoid repeating past mistakes. Only then can interest-bearing stablecoins truly achieve the goal of allowing more people to participate in financial gains.