Can treasury-linked stablecoins bring stability to DeFi?
2024-11-19

Decentralized finance (DeFi) is increasingly blending with traditional finance (TradFi), introducing new tools such as treasury-linked stablecoins.
These assets, including Tether’s USDt USDTUSD, USD Coin USDCUSD, and the newly launched USDX on the Flare Network, are linked to low-risk United States Treasury yields. However, they have sparked debates about their strategic and economic significance.
USDX is a treasury-linked stablecoin native on Flare, an Ethereum Virtual Machine (EVM)-based decentralized blockchain built for crosschain interoperability.
The stablecoin’s integration with Flare’s FAsset system, an overcollateralized, trustless bridging mechanism, enables real-world yields for digital assets and could help improve liquidity in DeFi markets while offering a more secure alternative to existing options.
USDX vs. USDC
USDX plays a key role in Flare’s ecosystem, raising questions about its advantages over more established stablecoins like USDC.
In response to the concerns, Hugo Philion, co-founder of Flare Network and CEO of Flare Labs, explained that “whilst locked in agent vaults as cUSDX,” the treasury-linked stablecoin can earn a yield from Clearpool. “This makes the FAsset system far more economically desirable from the agent perspective,” Philion said.
He also emphasized that FAssets cannot be released “until the FTSO [Flare Time Series Oracle] has a reliable price for USDX,” which is yet to be listed and in the hands of the stablecoin issuer.
In an interview with Cointelegraph, the Flare co-founder explained that while “USDC is available as a bridged asset on Flare,” there was also demand for a natively-issued dollar-pegged 1:1 dollar-backed asset — hence the creation of USDX.
Timing and strategic vision
The launch of USDX has faced criticism for delays in its listing and concerns that Flare may miss market opportunities. Critics argued that the timing risks leaving Flare behind in a competitive market.
Philion countered these concerns by pointing out that the broader crypto market is still in its early stages:
In the interview, he also explained the vision for USDX’s Clearpool yield sustainability, which has “reliably reflected US treasury yield rates” since May.
The Clearpool vault on Flare only accepts USDX and allows holders to stake their stablecoins for exposure to US Treasury yield rates via the treasury-linked stablecoin.
Related: Bitcoin price metrics and ‘influx’ of stablecoins to exchanges hint at rally continuation
FAssets and risk considerations
Philion also discussed the launch strategy for FAssets, emphasizing a conservative approach to mitigate risks. Flare Labs plans to limit the creation of FAssets during the early stages to manage demand and supply effectively.
“This strategy assumes that other assets like stablecoins and wETH won’t be eligible as primary collateral initially,” Philion said. “It also acknowledges that without a thorough understanding of risks, allowing the FAsset system to expand too quickly could be problematic.”
He added that “by targeting growth through a gradual, conservative approach,” milestones can be hit while “ensuring compliance with regulatory changes to mitigate legal risks.”