Author: Jae, PANews

During the prolonged crypto bear market, converting funds into stablecoins for "physical protection" is the most common survival instinct for investors. However, capital is inherently profit-driven, and leaving assets idle in wallets is undoubtedly a waste of capital efficiency. For stablecoin holders who are observing the market, earning interest on their holdings is a genuine and essential need.

With the implementation of crypto laws worldwide, regulatory authorities in various countries are quietly moving from the gray areas into the deeper waters, rewriting the rules of the game in the stablecoin sector.

How to balance earning interest on cryptocurrency with compliance and security has become a difficult decision for investors.

In the past, the old order of USDT and USDC "two giants" began to loosen, ushering in a profound differentiation and the emergence of a new generation of stablecoins.

Emerging stablecoins are vying for dominance; a balanced approach is the key to success.

Stablecoin holders constitute the largest, albeit often invisible, force in the crypto market. Due to their relatively conservative risk appetite, they typically hold substantial amounts of USDT, USDC, or other dollar-denominated currencies, ready to "buy the dip" or seize trading opportunities.

However, besides the two stablecoin giants, USDT and USDC, new stablecoins are emerging like mushrooms after rain, leaving stablecoin holders with "choice paralysis." Whether it's U issued by United Stables, USD1 issued by World Liberty Financial (WLFI), or PYUSD/USDG issued by Paxos, they are all trying to grab a share of this tempting pie.

As a darling of the DeFi market, U has been adorned with a high APY since its inception. Since January of this year, U's market capitalization has surged by nearly 1.6 times, making it the talk of the town.

However, behind its high APY and high growth lies a large amount of platform subsidies and complex leverage agreements such as Venus and ListaDAO, resulting in a profit structure with obvious volatility and timeliness.

In terms of reserve composition, U is more like an asset package. Its reserves not only include cash, but also a large number of other stablecoins such as USDT and USDC, RWA (real-world assets), and even crypto assets such as BNB, ETH, and LSD (liquidity staking derivatives). This "nested doll structure" means that if a risk occurs in one of the underlying assets, it may trigger a chain reaction of liquidity depletion.

USD1, in which the Trump family has a deep involvement, is in the process of applying for a trust bank license from the Office of the Comptroller of the Currency (OCC) and is currently being issued in compliance with regulations by relying on "white label services" provided by third-party infrastructure providers such as BitGo.

PYUSD, backed by payment giant PayPal, is issued by Paxos and is subject to strict regulation by the New York State Department of Financial Services (NYDFS), making it even more compliant.

However, USD1 and PYUSD are primarily stablecoins issued in the US market, inherently carrying a "single point of failure" risk. If subject to scrutiny by US regulatory agencies, their response will be given higher priority.

In this tug-of-war over compliance and security, USDG, also issued by Paxos, presents a "balanced picture."

Holding dual compliance licenses from the Monetary Authority of Singapore (MAS) and the European Crypto Asset Market Regulation Act (MiCA), it cleverly utilizes two independent legal systems to build geographical flexibility in the context of global expansion amidst frequent cross-border regulations, significantly mitigating the policy black swan risks of a single jurisdiction.

It has not compromised on the composition of its reserve assets; USDG insists on "pure" US dollar and its equivalent reserves, making it more pure and secure.

This restraint has allowed it to unleash tremendous explosive power while maintaining high compliance standards: since the beginning of this year, USDG's market capitalization has increased by as much as 98%, leading the growth rate among mainstream compliant stablecoins.

Recently, USDG's expansion has accelerated significantly. Kamino's Ethena market launched an additional $50 million USDG lending facility; the amount of new USDG added on the Solana network is close to $700 million, with liquidity depth continuing to expand; and the USDG yield pool TVL (total value locked) on Pendle has also exceeded $200 million, setting a new record for similar products.

A comprehensive comparison reveals that, among competitors of similar scale, USDG boasts a compliance level close to that of USDC while maintaining an impressive growth rate and demonstrating a more balanced overall performance, making it a dark horse in the industry worth watching.

Compliance reshapes the logic of holding tokens, and an open ecosystem unlocks a path to both high returns and liquidity.

With the introduction of the Genius Act and the MiCA framework, stablecoin holders have realized that compliance will become the standard.

In the radar of capital markets, the winds have shifted. Investors who once focused solely on APY (Annualized Yield) are now starting to consider "certainty premiums." High paper returns are no longer the only factor attracting funds; highly liquid assets that can guarantee long-term stability and unlimited liquidity within the regulatory framework are becoming the preferred choice for investors.

USDG's performance in terms of compliance and security is approaching the highest industry standards.

USDG's competitive advantage stems from its rigorous compliance structure. Paxos Digital Singapore, the issuer of USDG, holds a Principal Payments Institution (MPI) license from the Monetary Authority of Singapore (MAS), meeting near-bank-level standards in areas such as capital adequacy, liquidity management, and asset protection. Meanwhile, Paxos Issuance Europe Oy (PIE), the European issuer of USDG, is also regulated by the Finnish Financial Supervisory Authority (FIN-FSA) and fully complies with MiCA guidelines, making it one of the few stablecoin issuers that simultaneously meets the regulatory frameworks of both Asia and Europe.

USDG's security is based on its 100% high-quality reserve assets. Each USDG coin represents cash, short-term U.S. Treasury bonds, or highly liquid equivalents held in segregated accounts at regulated financial institutions.

More importantly, this reserve mechanism legally grants USDG "bankruptcy remoteness." According to relevant regulations in Singapore and the EU, reserve assets are defined as assets belonging to stablecoin holders. This means that even if Paxos is liquidated, the reserve assets cannot be used to repay the issuer's debts, and holders still enjoy their statutory right of first refusal.

Compliance is the foundation, but what truly makes USDG work is its open ecosystem.

From an underlying ecosystem perspective, the competitors all bear a strong "single ecosystem" imprint: U relies on the BNB Chain ecosystem, USD1 depends on the WLFI ecosystem, and PYUSD is attached to PayPal's consumer-grade retail network. This means that the market trust of stablecoins is deeply tied to the overall prosperity and reputation of the ecosystem in which they exist, resulting in a high degree of correlation risk.

USDG, on the other hand, has taken a different approach, building an open ecosystem called GDN (Global Dollar Network), which boasts stronger cross-platform migration capabilities and richer ecosystem support. It supports the free flow of assets among various partners, such as exchanges, wallets, and payment protocols, and USDG rewards will be distributed to all distributors and users through GDN. This means that as long as users hold assets on platforms that support USDG, they can enjoy feedback based on the underlying asset's returns.

GDN's "revenue spillover" effect has attracted top institutions such as Aave, Anchorage Digital, Bullish, Bitpanda, Galaxy, Kraken, OKX, Robinhood, Solana, and payment giant Worldpay, forming an ecosystem with stronger self-expansion momentum.

In the micro-level trading world, OKX's deep integration with USDG allows this balance between "yield and liquidity" to be fully realized. For opportunistic stablecoin holders, traditional fixed-term wealth management or lock-up schemes are insufficient to meet their high liquidity requirements.

Stablecoin holders need a stable, secure, and profitable asset that can be traded at any time: one that can generate returns and be converted into trading positions with minimal loss and maximum speed when market signals appear.

Zero friction cost: OKX offers a "zero transaction fee" benefit for the USDG/USDT trading pair in the spot market, smoothing out the psychological barrier for users to switch to USDG;
Seamless Earnings: Users who hold USDG on OKX will receive rewards from the GDN network (APY 3.5% for regular users and APY 4.1% for VIP users), distributed weekly. No staking or locking is required, and funds are always available, effectively alleviating the conflict between liquidity and holding returns.
Multiple uses for one product: Users can use USDG as collateral for cross-currency lending or contract trading on OKX with a conversion rate as high as 0.98, allowing users to earn profits while maintaining their positions;
No limits: Most notably, OKX does not set an upper limit on the distribution of USDG profits, which means extremely high capital utilization and stable capital returns for institutional users managing large amounts of assets.

Although USDT/USDC offers a wider range of interest-bearing products on CEXs, and their interest rates may not be lower than USDG, their yield structures all employ tiered interest rates. Once a certain holding amount is exceeded, the yield will drop sharply. USDG products on OKX do not have the problem of holding limits.

Along with this ingenious mechanism design, a low-risk and quantifiable arbitrage strategy has emerged.

For OKX VIP investors with a high risk tolerance, the holding interest rate for USDG is as high as 4.1%, while the borrowing interest rate for USDT is only 2.5%, creating a 1.6% interest rate difference that provides an environment for executing arbitrage strategies.

Under the unified account model, the loan-to-value ratio is 81.6%. Assuming a principal of $50,000 USDG, after 6 cycles, a user can borrow over 150,000 USDT, which can eventually be exchanged for over 200,000 USDG, equivalent to a 4x leverage.

Under these conditions, the borrowing cost for 150,000 USDT is approximately $3,750, while the annualized return for 200,000 USDG reaches $8,200. The net profit from the interest rate spread is $4,450, resulting in an annualized return of 8.9%.

While there will never be a shortage of investors with a high risk appetite, the tide in the crypto market is irreversibly shifting. The era of rampant growth based solely on who had the highest APY is slowly coming to an end with the implementation of the Genius Act and MiCA.

Market liquidity is rapidly converging on assets that operate "in the open." In a cycle of increasingly stringent regulations and accelerated liquidity concentration on compliant assets, the second half of the stablecoin era will belong to those who capture the "certainty premium."

During the long period of compliance convergence, USDG is one of the few balanced assets that can simultaneously meet compliance requirements and yield needs.

Meteora: Platform funds are safe and unaffected by the Drift incident.

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