Circle on Thursday announced that the world’s biggest crypto exchange would begin accepting USYC, a type of stablecoin that shares yield with investors, as collateral from institutional clients. While the news will be of interest primarily to a niche subset of traders, the new arrangement is significant as another step in the rapid integration of the traditional and crypto realms of finance.
Circle, a newly-public company that is the world’s second biggest issuer of stablecoins, acquired USYC (which is short for U.S. yield coin) as part of a larger acquisition in January. USYC stands out from most other stablecoins in that it is a tokenized version of a money market fund and, unlike conventional stablecoins like USDC and Tether, it shares interest proceeds with those who hold it.
According to Circle’s Chief Business Officer, Kash Razzaghi, the importance of USYC also lies in its appeal to institutional traders as a source of collateral. Many of these traders currently post money market securities as collateral when they want to trade on crypto platforms like Binance. While this arrangement works well for purposes of trading, it is also cumbersome because it can take a day or more to settle a transaction—especially on weekends when the traditional financial system, which unlike crypto does not run 24/7, is closed.
This is not the case when traders post USYC, Razzahi explained, since the collateral can be instantly redeemed for its companion stablecoin USDC, which is fast becoming a practical alternative to traditional dollars.
While many institutional traders who use platforms like Binance post collateral in Bitcoin or other crypto assets, some traditional organizations remain reluctant to do so. According to Catherine Chen, Binance’s Head of VIP and Institutional, this in part because the infamous collapse of FTX left many wary of leaving collateral on an exchange.
Chen added that Binance has sought to address this concern with an offering called Banking Triparty that involves the company working with traditional banks to let them act as custodians, and post assets held at the bank as collateral for crypto trading. She added that many of these same partners are working with Binance on integrating USYC, which would provide for faster settlement.
On Thursday, Binance also announced that it would likewise be integrating cUSDO, another yield-bearing stablecoin. cUSDO, which stands for OpenEden OpenDollar, is issued by OpenEden Digital, a Bermuda-licensed and regulated entity.
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