Paxos Introduces First Regulated Interest-Bearing Stablecoin in ADGM

Paxos International has announced the launch of the Lift Dollar (USDL), an interest-bearing stablecoin regulated in the Abu Dhabi Global Market (ADGM), which offers overnight yields on reserves held in liquid U.S. government securities and cash equivalents. Tether also recently announced that it made a $18.75 million investment in XREX Group and their new stablecoin XAU1. Additionally, Stable.com is also launching its own USD3 stablecoin. Meanwhile, d M^0 was able to secure $35 million for its stablecoin platform, and the UAE's Central Bank has approved new regulations for overseeing and licensing dirham-backed stablecoins.

Paxos' USDL Stablecoin

Paxos International announced that it is launching an interest-bearing stablecoin called the Lift Dollar (USDL), which will be regulated in the Abu Dhabi Global Market (ADGM). USDL will provide overnight yield on the interest Paxos International earns from the reserves backing it. These reserves, which consist of liquid U.S. government securities and cash equivalents, will be held in accordance with ADGM’s Financial Services Regulatory Authority requirements. Instead of earning interest on these reserves, Paxos International will charge an issuer fee for the token.

The USDL will be available in Argentina through distributors Ripio, Buenbit, Manteca, and Plus Crypto.

According to Paxos, the USDL is the first interest-bearing, regulated stablecoin of its kind. The yield is expected to be around 5%, and will be distributed automatically through an Ethereum smart contract using a mechanism called rebasing, which adjusts the yield based on market conditions.

It is, however, important to note that the USDL will not be accessible to residents of the United States, the United Arab Emirates outside the ADGM, the United Kingdom, the European Union, Canada, Hong Kong, Japan, or Singapore. Paxos explained that the digital assets have not been registered under the US Securities Act of 1933 yet, and cannot be offered or sold in the US without an applicable exemption from registration.

Paxos is based in New York, and also mints PayPal USD (PYUSD), Pax Dollar (USDP), and Pax Gold (PAXG) under the regulation of the New York Department of Financial Services (NYDFS). It also previously minted Binance USD (BUSD) until regulatory pressure from the NYDFS and the US Securities and Exchange Commission (SEC) stopped the issuance because of concerns over unregistered securities.

The ADGM is a free economic zone in Abu Dhabi that was established in 2013, and it has been rapidly expanding ever since. It introduced comprehensive distributed ledger technology (DLT) regulations in November and partnered with Solana to develop DLT technology in February.

Since then, other well known companies like Chainalysis and Blockdaemon have set up offices in the ADGM. Over the past year, digital asset firms including Rain, M2, Laser Digital, Binance FZE, and QCE Capital have received licenses to operate within the ADGM.

Tether Invests $18.75M in XREX Group

Tether, the company behind the USDT stablecoin, recently announced that it invested $18.75 million in XREX Group and the launch of a new stablecoin called XAU1. According to the company’s press release, one of the main goals of the collaboration is to improve cross-border business-to-business (B2B) payments as well as to drive innovation in the digital asset industry and regulatory technology.

Paolo Ardoino, the CEO of Tether, sees a lot of potential in the XREX partnership, and believes that it will help start new and exciting projects, like the XAU1 stablecoin. It will also help facilitate USDT-based cross-border payments, which could set a new standard for financial accessibility and efficiency in the region.

In addition to the $18.75 million investment, XREX will launch the XAU1 stablecoin in collaboration with the Unitas Foundation. XAU1 is a United States dollar-pegged unitized stablecoin, over-reserved with Tether gold (XAUt), which provides it with a stable alternative and hedge against inflation.

Wayne Huang, CEO of XREX Group, stated that “with Tether’s strong support and investment, we’re expanding this success into a RegTech product line that further refines XREX Group as a responsible financial institution”.

Stable.com Launches USD3 Stablecoin

Stable.com, a fintech company led by former Consensys employee Jack Jia, is also launching a new 1:1-backed stablecoin called USD3. The stablecoin will be available on Ethereum, Polygon, Avalanche, and Linea, and will offer developers and businesses an interoperable method of transacting and simplified decentralized application (DApp) integration.

According to Jia, Stable.com is taking being a regulated financial institution in the U.S. very seriously, and has a broad compliance program developed by industry veterans. USD3 will always be 1:1 backed by USD or cash equivalents and will undergo regular internal and external audits to ensure transparency and compliance.

Although Jia is very excited about the new stablecoin and its potential, the CEO does acknowledge the potential risks and challenges of launching a stablecoin in the current market conditions. He believes the global regulatory environment for stablecoins is improving, but recognises that a strong and clear regulatory framework is crucial for the long-term success of stablecoins.

Agora CEO Nick van Eck also recently commented on the risks associated with launching news stablecoins. He specifically warned that yield-bearing stablecoins are at risk of being classified as securities.

Stable.com will have access to robust financial infrastructure, which will allow users from around the world to quickly and efficiently onboard and transact with USD3 using various global payment methods at low fees.

M^0 Raises $35M for Stablecoin Platform

Even more new stablecoins could hit the market soon as decentralized infrastructure provider M^0 secured $35 million in a Series A funding round for its stablecoin issuance platform. The round was led by Bain Capital Crypto, but other investors like Galaxy Ventures, Wintermute Ventures, GSR, Caladan, and SCB 10X also participated. The company deployed its core protocol and on-chain governance mechanism on the Ethereum mainnet on Jun. 4.

M^0's platform allows institutional clients to mint stablecoins based on high-quality collateral, like United States Treasuries. This process is actually very similar to asset tokenization as it enables institutional investors to convert assets into digital tokens, specifically stablecoins. Unlike MakerDAO’s stablecoin, Dai (DAI), which uses crypto assets as collateral, M^0 uses traditional assets.

Stefan Cohen, partner at Bain Capital Crypto, pointed out the rapid growth of stablecoins as a key asset for settlement on public blockchains, and he believes the market will very likely continue to expand to trillions of dollars over the next decade. Many industry experts also believe that stablecoins are expected to see increased adoption in decentralized finance (DeFi) applications, like asset tokenization and remittances.

According to Luca Prosperi, president of the M^0 Foundation, it is important to grow beyond what he considers outdated stablecoin solutions that rely on old financial infrastructure. He envisions M^0 as the next-generation backend for fintech frontends.

CBUAE Greenlights New Stablecoin Regulations

Meanwhile, the board of directors of the Central Bank of the United Arab Emirates (CBUAE) has approved the issuance of a new system to oversee and license stablecoins in a meeting held in Abu Dhabi, chaired by UAE vice president and CBUAE chairman Sheikh Mansour bin Zayed Al Nahyan. Other attendees included deputy chairmen Abdulrahman Saleh Al Saleh and Jassem Mohammad Al Zaabi, CBUAE Governor Khaled Mohamed Balama, and several board members.

The board approved a regulation for overseeing and licensing stablecoins. KARM Legal Consultants founder Kokila Alagh explained in an interview with Unlock Blockchain that the regulations provide clarity on the issuance, licensing, and supervision of dirham-backed payment tokens.

According to the new rules, payment tokens have to be backed by UAE dirhams and cannot be linked to other currencies, digital assets, or algorithms. Merchants and service providers are only allowed to accept dirham-backed tokens and no other virtual assets.

The finer details of the meeting were not openly shared, but the discussion included key projects under the financial infrastructure transformation (FIT) program. On Feb. 13, the CBUAE announced plans to issue a central bank digital currency (CBDC) as part of the FIT initiative. The CBDC will address inefficiencies in cross-border payments and drive domestic payment innovation. The CBUAE believes that issuing a CBDC will help the UAE stay competitive as a financial and digital payments hub.