Paxos Launches New Interest-Bearing Stablecoin "USDL" with 5% Daily Yield - Can It Challenge USDT and USDC's Dominance?

Yesterday, Paxos International, a subsidiary of the UAE branch of stablecoin issuer Paxos, announced in a press release the official launch of an interest-bearing stablecoin, Lift Dollar (USDL). Paxos International is regulated by the Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM).

Daily Interest Distribution on Ethereum

According to the press release, the reserve structure of USDL will be similar to other USD stablecoins issued by Paxos, backed 1:1 by high-quality liquid assets such as USD deposits, short-term US Treasury bonds, and cash equivalents.

What sets USDL apart is that it will be issued on Ethereum and will use Ethereum's smart contracts to distribute the yield generated from its reserves daily to eligible wallet addresses without any additional steps required from token holders. Paxos' Product Manager, Ronak Daya, stated:

"Paxos International uses rebasing technology to distribute yields, so the amount of USDL held by users will increase daily as the yield accrues."

However, the official statement did not specify how the interest will be transferred during token transactions or remittances.

The rebase mechanism dynamically adjusts the total supply of tokens based on market conditions to keep the token price relatively stable. It also ensures that users' pool token amounts maintain a certain ratio to stabilize the actual price of their holdings. Different rebase projects might adopt varying elastic supply designs.

Currently, USDL is not available in certain jurisdictions, including the United States, the United Arab Emirates (excluding the Abu Dhabi International Financial Center), the United Kingdom, the EU, Canada, Hong Kong, Japan, or Singapore, indicating that it is still in the early stages.

USDL Interest at Around 5%

Regarding interest, Ronak Daya mentioned in an interview that users can currently earn an annualized yield of around 5% with USDL, which aligns with the returns on US Treasury bonds:

"For this launch, we waived 30 basis points (bps) of asset management fees. Therefore, we only retain 20 bps, meaning users will receive over 5% in yields."

Although USDL is not the first interest-bearing stablecoin—Mountain Protocol previously launched USDM, which also buys US Treasury bonds and offers interest—Paxos has the competitive edge due to its past experience with BUSD, which once ranked third in market share. This background gives Paxos an advantage in dealing with regulations and marketing.

Currently, leading stablecoins USDT and USDC do not offer interest to users, although they earn billions of dollars annually from holding US Treasury bonds. If USDL grows successfully in the future, its 5% annual interest will be a significant competitive advantage, potentially forcing Tether and Circle to change their business strategies. This is a development worth monitoring closely.