Paxos, a leading crypto exchange, has launched a new yield-generating stablecoin called the Lift Dollar (USDL). Issued in the UAE and regulated by Abu Dhabi's financial watchdog, USDL promises users a programmatic daily yield of around 5%, aligning its returns with those of U.S. Treasury bonds.

Stablecoins like USDL are digital assets designed to maintain a stable value, typically by being pegged to a fiat currency like the U.S. dollar. They offer the benefits of cryptocurrencies—fast transactions, and programmability—while avoiding the volatility plaguing assets like Bitcoin.

This stability has fueled stablecoins' rapid growth, with their market cap swelling from $5 billion in 2019 to over $160 billion today. Tether (USDT) and USD Coin (USDC) lead the pack, facilitating trades on crypto exchanges and powering decentralized finance (DeFi) protocols.

Yet stablecoins occupy a regulatory gray area. While Paxos' USDL is overseen by UAE authorities, major issuers have faced scrutiny over their reserves and disclosures. The collapse of TerraUSD last year underscored the risks of algorithmic stablecoins unpegged from real-world assets.

With USDL, Paxos aims to bridge the worlds of traditional finance and crypto. By programmatically generating yields aligned with risk-free rates on U.S. Treasuries, USDL positions itself as a "savings product" for the digital age.

"We're democratizing access not just to dollars, but to the risk-free rate, in the safest manner possible," said Paxos CEO Charles Cascarilla. This could appeal to users in countries like the inflation-beaten Argentina, where USDL's launch partners include local crypto platforms Ripio, Buenbit, and TiendaCrypto.

"For the launch, we're foregoing 30 basis points of our asset management fee," noted Walter Daya, a Paxos executive. "So users will get more than 5%."

The Big Picture

As crypto adoption accelerates globally, the need for stable, regulated digital assets is intensifying. From remittances to e-commerce, stablecoins offer a bridge between fiat currencies and blockchain networks.Yet this potential is tempered by risks around reserves, transparency, and investor protections.

Paxos’ stablecoin is one of a new generation of digital dollars that automatically generates interest for holders. Ethena’s USDe offered users as much as 30% when it launched. The premise is that stablecoin issuers should be flexible enough to share their dollar interests with holders.