Nick van Eck, CEO of stablecoin issuer Agora, said stablecoin issuers offering a yield component to provide passive income to holders are missing the point of stablecoin’s core mission. I insist.
Instead, these companies should focus on utility, liquidity, and trading vehicles in a way that allows them to reach as many individuals and businesses as possible, the son of investment management guru Jan van Eck explained in a May 27 Medium post.
Yield-bearing stablecoins have provided a new dimension for decentralized finance users looking to earn interest, but van Eck said these products are likely to be classified as security products in many countries, limiting their customer reach.
“Not only does this deprive customers, it also deprives liquidity providers, suppliers and higher utility limits. Your products are not freely tradable,” van Eck said.
“Regulated financial services companies outside the United States will not use your product because it does not provide sufficient compensation and poses risks.”
Examples include Dai (DAI), Ethena’s USDe, and Mountain Protocol’s USDM.
Yielding stablecoins lack sufficient margin to sustain business operations, let alone pay liquidity costs and expand the ecosystem, the Agora CEO added.
Another key issue is that certain stablecoin issuers have formed strong ties with cryptocurrency trading companies, such as Circle with Coinbase and Binance’s own BUSD. This is a model that van Eck describes as “rife with conflicts of interest” before being scaled back.
Van Eck said Agora will not be “picking winners and losers” when it launches the Agora Digital Dollar (AUSD) on Ethereum next month in June. Instead, we will try to work with as many cryptocurrency exchanges, trading firms, and fintech companies as possible.
He described Tether’s USDT as stablecoin 1.0, while Circle’s USD Coin (USDC) and several issuers have expanded on it to provide greater transparency around reserves, banking partners, and regulatory compliance, forming the stablecoin 2.0 era.
Van Eck said he hopes AGORA will be the third stablecoin to focus solely on utility, liquidity and a means of trading.
Related: Cardano finally gets fiat-backed stablecoin USDM after huge delays.
However, according to CoinGecko, Agora plans to enter the fierce stablecoin market dominated by USDT and USDC, which boast market capitalizations of $111.7 billion and $32.5 billion, respectively.
The next seven largest stablecoins also have a market capitalization of more than $500 million.
But van Eck said in April that there was still room for new entrants in the $161.3 billion industry, especially those offering alternative models such as Tether and Circle.
Van Eck predicts the industry will grow to $3 trillion by 2030, at an impressive compound annual growth rate of 70.1%.
Agora closed a $12 million funding round in April.
AUSD is fully backed by cash, U.S. Treasury bonds and overnight repo contracts, and VanEck, a $90 billion asset management firm headed by Jan van Eck, manages the funds for Agora’s reserves.
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