Nick van Eck, CEO of Agora, critiques yield-bearing stablecoins, arguing they misalign with the fundamental mission of stablecoins and face regulatory challenges that could limit their adoption.

In a recent Medium post, Nick van Eck, the CEO of stablecoin issuer Agora, expressed concerns about yield-bearing stablecoins, asserting that they diverge from the primary purpose of stablecoins and are likely to be classified as securities in many jurisdictions. This classification, he contends, would restrict their customer reach and hinder their utility as a medium of exchange.

Yield-bearing stablecoins have become popular among decentralized finance (DeFi) users for providing passive income opportunities. However, van Eck argues that these products are missing the core mission of stablecoins, which should prioritize utility, liquidity, and widespread transaction capabilities. According to van Eck, offering a yield-bearing element transforms these stablecoins into financial products that are more likely to be seen as securities, thus limiting their accessibility and tradeability.

"Not only does this deprive you of customers, but it also deprives you of liquidity providers, vendors, and a higher utility ceiling. Your product is not freely tradeable," van Eck stated, highlighting the regulatory and practical constraints these yield-bearing stablecoins face. He emphasized that regulated financial service companies outside the US are unlikely to use such products as they introduce risk without offering sufficient reward.

Examples of yield-bearing stablecoins include Dai (DAI), Ethena's USDe, and Mountain Protocol's USDM. Van Eck pointed out that these stablecoins often lack the necessary margin to sustain business operations, pay for liquidity, and expand their ecosystems. He also criticized the close ties between certain stablecoin issuers and cryptocurrency trading firms, such as Circle's partnership with Coinbase and Binance's BUSD, which he described as models "rife with conflict of interest."

Agora aims to take a different approach with its upcoming launch of the Agora Digital Dollar (AUSD) on Ethereum next month. Van Eck emphasized that Agora will not "pick winners and losers" but instead will strive to collaborate with as many cryptocurrency exchanges, trading firms, and fintech companies as possible. He envisions Agora's AUSD as part of the third iteration of stablecoins, focusing solely on utility, liquidity, and means of transaction.

Van Eck traced the evolution of stablecoins, describing Tether's USDT as the first generation, with Circle's USD Coin (USDC) and others representing the second generation with improved transparency around reserves and regulatory compliance. He hopes Agora will lead the third generation, emphasizing practical use and broad adoption.

The stablecoin market is highly competitive, dominated by USDT and USDC, with market caps of $111.7 billion and $32.5 billion, respectively, according to CoinGecko. Despite this, van Eck believes there is room for a newcomer in the $161.3 billion industry, especially one offering a model distinct from Tether and Circle. He predicts that the stablecoin industry will expand to $3 trillion by 2030, achieving a 70.1% compounded annual growth rate.

Agora recently closed a $12 million funding round in April. The AUSD will be fully backed by cash, U.S. Treasury bills, and overnight repo agreements. The reserves for AUSD will be managed by a fund from VanEck, the $90-billion asset management firm led by Jan van Eck, Nick’s father.

By focusing on utility, liquidity, and broad transactional capability, Agora aims to redefine the stablecoin market and navigate the regulatory landscape more effectively than yield-bearing stablecoins.