Stablecoin issuers that introduce a yield-generating element to give stablecoin holders passive income are missing the core mission of a stablecoin, says Nick van Eck, CEO of stablecoin issuer Agora.
Instead, these companies should focus on facilities, liquidity and means of transaction so as to reach as many individuals and businesses as possible, the son of investment management maestro Jan van Eck explained in a May 27 article on Medium.
Yielding stablecoins have introduced a new dimension for DeFi users looking to earn interest, but van Eck says these products are likely to be classified as security products in many countries, limiting customer access.
“Not only does it deprive you of customers, but it also deprives you of liquidity providers, resellers and higher utility caps. “Your product is not freely tradable,” Van Eck said, adding:
“Financial services companies regulated outside the United States are less likely to use your product because it introduces risk without offering sufficient reward.”
Examples include Dai (DAI), Ethena’s USDe, and Mountain Protocol’s USDM.
The Agora CEO added that generating stablecoins also do not have sufficient margin to support business operations, let alone fund liquidity and ecosystem expansion.
The other major problem is that some stablecoin issuers had built strong relationships with cryptocurrency exchanges like Circle with Coinbase and Binance’s BUSD – before they started halving them – which Van Eck described as a model “riddled with conflicts of interest”.
Van Eck said Agora will not “pick winners and losers” when the Agora Digital Dollar (AUSD) launches on Ethereum next month in June. Instead, it will try to work with as many cryptocurrency exchanges, trading companies, and fintech companies as possible.
Tether’s USDT has been described as Stablecoin 1.0, with Circle’s USDC (USDC) and a few issuers expanding on this while improving transparency around reserves, banking partners and regulatory compliance to shape the Stablecoin 2.0 era .
Van Eck said he hopes AGORA represents the third iteration of stablecoins focused solely on utility, liquidity and means of transaction.
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However, Agora will enter the cutthroat stablecoin market, led by USDT and USDC, which have a market cap of $111.7 billion and $32.5 billion, respectively, according to CoinGecko.
The next seven largest stablecoins also have a market cap of over $500 million.
However, Van Eck said in April that there is still room for a new entrant in the $161.3 billion industry, particularly one that offers an alternative model to Tether and Circle.
Van Eck expects the industry to reach $3 trillion by 2030, a staggering compound annual growth rate of 70.1%.
Agora closed a $12 million funding round in April.
The Australian dollar will be fully backed by cash, US Treasuries and overnight repurchase agreements, while $90 billion asset manager VanEck – of which Jan Van Eck is CEO – will manage an Agora reserve fund.
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