Yield-Bearing Stablecoins Miss the Mark, Argues Agora CEO Nick van Eck


Nick van Eck, CEO of Agora, has voiced his criticism of yield-bearing stablecoins, arguing that they diverge from the fundamental mission of stablecoins. In a May 27 Medium post, van Eck emphasized that stablecoin issuers should prioritize utility, liquidity, and transactional functionality over offering passive income to holders.

Stablecoins have become a cornerstone of the decentralized finance (DeFi) ecosystem, providing a stable medium of exchange pegged to fiat currencies. However, some issuers have introduced yield-bearing elements, allowing users to earn interest. 

Van Eck Not a Supporter of Stablecoins

Van Eck contends that these products will likely be classified as securities in many jurisdictions, thereby limiting their customer reach and usability.

“Not only does this deprive you of customers, but it also deprives you of liquidity providers, vendors, and a higher utility ceiling. Your product is not freely tradeable,” van Eck wrote. He further noted that regulated financial service companies outside the U.S. are unlikely to adopt these products due to the additional risks without sufficient rewards.

Lacking Margins

Examples of yield-bearing stablecoins include Dai (DAI), Ethena’s USDe, and the Mountain Protocol’s USDM. Van Eck argues that these products often lack the margins necessary to sustain business operations, let alone pay for liquidity and expand their ecosystems.

Another critical issue raised by van Eck is the potential conflict of interest stemming from the close relationships between stablecoin issuers and cryptocurrency trading firms. He cited Circle’s partnership with Coinbase and Binance’s association with BUSD, which Binance started to wind down due to regulatory pressures.

Agora to Adopt a Different Approach

Van Eck stated that Agora would adopt a different approach with its upcoming stablecoin, the Agora Digital Dollar (AUSD), set to launch on Ethereum in June. Unlike its competitors, Agora plans to collaborate with as many cryptocurrency exchanges, trading firms, and fintech companies as possible, avoiding any favoritism.

Van Eck described the evolution of stablecoins in three phases. Tether’s USDT represents stablecoin 1.0, providing a basic stablecoin model. Circle’s USD Coin (USDC) and similar issuers have ushered in the 2.0 era with improved transparency around reserves, banking partners, and regulatory compliance. Agora aims to introduce stablecoin 3.0, focusing exclusively on utility, liquidity, and transactional use cases.

New Stablecoins Continue to Enter

Despite the competitive stablecoin market, dominated by USDT and USDC with market caps of $111.7 billion and $32.5 billion respectively, van Eck believes there is room for new entrants. The next seven largest stablecoins also have significant market caps, each above $500 million, indicating a robust market landscape.

In April, van Eck expressed confidence in the future growth of the stablecoin industry, predicting it could expand to $3 trillion by 2030, achieving a compounded annual growth rate of 70.1%. This optimism is underpinned by Agora’s recent $12 million funding round, which will support the launch and development of AUSD.

AUSD will be fully backed by cash, U.S. Treasury bills, and overnight repo agreements. Additionally, the $90-billion asset management firm VanEck, where Jan van Eck serves as CEO, will manage a fund for Agora’s reserves, ensuring the stablecoin’s stability and reliability.

June 22, 2024

Ledger CTO Charles Guillemet described the withdrawal of Monero (XMR) as..

June 22, 2024

Fidelity intends to fund its next "Fidelity Ethereum Fund" with $4.7..

June 22, 2024

Fetch.ai and Raboo Ride The Surge Wave, Can Whales Save Chainlink?

ads-image ads-image