In an announcement at the Token2049 event in Singapore, BitGo revealed plans to launch a novel dollar-backed stablecoin named USDS next year. 

The stablecoin promises to differentiate itself from existing options by introducing innovative incentives for liquidity providers. 

A Fresh Take on Stablecoins?

BitGo’s new stablecoin, USDS, will be backed by short-term Treasury bills, overnight repos, and cash, similar to many existing stablecoins, according to a Sept. 18 press release.

However, the company is positioning USDS as an open-participation stablecoin. Unlike its predecessors, USDS will reward institutions that contribute liquidity to its ecosystem.

BitGo CEO Mike Belshe spoke about the motivation behind USDS, stating:

“Existing stablecoins serve an important role, but we see an opportunity to create something more open and fair. The key innovation with USDS is that it rewards those who help grow the network.”

The USDS platform will reportedly offer easy onramps from USD, USDC, and USDT without a conversion fee for institutions, individuals, and DeFi participants worldwide.

Incentivizing Liquidity Providers

The core feature of USDS is its unique approach to rewarding liquidity providers. Institutions that contribute to the USDS network will receive returns generated from the stablecoin’s reserves. These returns will be distributed based on the size of their contributions, providing a financial incentive for participating in the ecosystem.

“Returns from the cash backing USDS will be shared with liquidity providers. This not only incentivizes participation but also aligns the interests of all parties involved,” Belshe stated.

Recent Developments and Risks

Amid these exciting announcements, BitGo faces scrutiny and potential challenges. Last August, a proposal from risk analysts at BA Labs suggested changing protocol parameters to minimize exposure to Wrapped Bitcoin (WBTC). 

This proposal is reportedly influenced by upcoming changes in BitGo’s custody arrangements, which will move its WBTC business from the US to Singapore and Hong Kong.

The proposal highlights concerns about the involvement of prominent figures, such as Justin Sun, in BitGo’s operations. Sun’s previous associations with TUSD and the resulting market issues have raised alarms among some stakeholders. BA Labs expressed concerns that Sun’s involvement could present elevated risks to the USDS network.

Despite these concerns, Belshe downplayed the risks associated with Sun’s involvement, stating that BitGo had anticipated such reactions and aimed to address them transparently.