George Washington is actually best known for his $1 bills. Here as a gigantic sculpture on Mount Rushmore. Image by Navin75 via License: Creative Commons

Stablecoins that pay interest are on the rise. With USDA, the Angle protocol is now throwing a decentralized variant into the ring.

There are ideas that are so inevitable that one can only wonder why they have not yet caught on in the market.

One of these is to issue a stablecoin that is backed by government bonds and other securities and passes on their interest, dividends or other income to the holders of the stablecoin. It would be fantastic if you just had a stablecoin that you could use to pay or save and that paid interest natively, overnight money 2.0 so to speak – and it would be possible!

As with any obvious and sensible idea, several startups in the crypto market are vying to implement it. The most advanced here is the Mountain Protocol, which launches the USDM dollar, a nice stablecoin with a 5 percent interest rate that is backed exclusively by US government bonds.

With the Angle Protocol (USDA), another player is now preparing to bring an interest-paying stablecoin onto the market. Angle enjoys the backing of Andresen Horowitz’s a16Z Investment Fund and plans to not only rely on government bonds, but also to earn interest on the dollars via DeFi lending. The owners should enjoy at least five percent returns, possibly more, and be less dependent on the Federal Reserve’s interest rate.

Angel is already issuing stablecoins, such as the Euro stablecoin EURA, but with a market capitalization of over $20 million, it is not exactly a bestseller – like all Euro stablecoins. The world wants dollars, not euros, rubles or yuan.

Unlike the USDM or Blackrock’s tokenized dollar treasuries, USDA is based on a decentralized protocol. It is, according to its own description, “the most complete and reliable interest-paying US dollar stablecoin.”

USDA’s infrastructure is modular and is made up of several smart contracts. A DAO of ANGLE token holders governs the construction; Users can use collateral from a whitelist to borrow the stablecoins, which effectively means creating them in the same way that banks create fiat money. The easiest way to do this is with other stablecoins, such as USDC, the second strongest stablecoin after Tether.

The government bonds that produce the interest are, unlike USDM and Blackrock, not conventional, but tokenized government bonds. These are essentially the core product of “Real World Assets”, RWA, and have already been tokenized to the tune of a good billion dollars. Angle can therefore write the government bonds, as well as the DeFi yields, directly into the protocol instead of leaving them to a central custodian.

Angle also plans to use a module to enable fluid exchange between USDA and other currencies. There will be a USDA/EURA exchange pair via Uniswap, so that dollars and euros can be exchanged decentrally and in real time at low fees.

Despite this decentralized architecture, the USDA suffers from the same problem as mountain dollars: they will not be available in the US. Because in the USA, a stablecoin that pays interest is considered – any asset that pays interest! – as security, i.e. as a security, and is therefore subject to the strict supervision of the SEC. They may be willing to allow a solid, well-positioned, interest-paying stablecoin. But just the risk of failure, the enormous costs of even trying, and the expected requirements are daunting.

This not only has the consequence that Americans of all people miss out on the opportunity to support and benefit from their own government in the easiest way imaginable, but also that USDA will have a difficult time on the very platforms where the stablecoin is at its best would shine: on DeFi platforms like Uniswap or Compound and so on.

Most users use these inherently decentralized protocols through central interfaces that are provided by development teams that have not the slightest intention of messing with American financial regulators by, for example, offering undeclared securities. Most exchanges will also avoid offering the coin to American customers, which means one of the most important user groups will be eliminated.

This means that the conservative tokens, which are reminiscent of daily money and imitate fiat money creation, are being pushed into financial buccaneering. Not Bitcoin or Ethereum, not even semi-legal ICO tokens – but tokenized government bonds that challenge DeFi’s promise of evading regulators’ requirements through a decentralized architecture.


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