Unraveling Economic Indicators and Crypto Market Trends

Today, we’re proud to announce our investment in Mountain Protocol, the issuer of USDM, a permissionless, yield-bearing stablecoin backed entirely by US Treasuries. We led the Series A round, which also included Castle Island Ventures, Coinbase Ventures and others.

Stablecoins are among the largest addressable markets in crypto. And to unlock the lion’s share of the market, we believe that a stablecoin should:

• make earning a base yield the default;
• hold assets with the same sovereign risk as the underlying fiat currency;
• have at least 1:1 backing with such assets – not just a tokenized trading strategy;
• hold assets backing the stablecoin in a bankruptcy-remote structure;
• be prudentially regulated in a respected jurisdiction.
• be able to freely move around on-chain as standard ERC20 and SPL tokens (no transfer restrictions)
• be auto re-basing for butter UX (everyday when you open your wallet, there are more tokens than yesterday because of accrued interest)

Stablecoins have existed for about a decade. And yet, USDM is the first stablecoin that satisfies all of the above requirements. Today, USDM is live on Ethereum, Polygon, Arbitrum, Optimism and Base with plans to expand to other networks soon, including Solana. It has been audited by Open Zeppelinand is regulated by the Bermuda Monetary Authority.Yield Is The Final FrontierStablecoins should explicitly be boring products. They should not be volatile. Banking crises should not impact stablecoins. Stablecoins should be so boring that the media forgets they even exist.There are very few opportunities to make stablecoins meaningfully better than what USDC and USDT already provide. Trust in the issuer is table stakes. Having a clear bankruptcy remote structure is paramount and is a clear differentiator for USDM vs. these incumbents. USDM is also backed entirely by US Treasuries, making it safer than other fractional or multi-asset stablecoins.Beyond trust, we contend that there is only one killer feature that can compete with the liquidity and brand recognition that USDC and USDT offer: yield. Specifically, auto-rebasing for yield accrual (i.e., users don’t have to do anything to accrue and claim their yield). Yield-bearing stablecoins are the future of crypto-native checking accounts.

The Prudential Regulation MoatIf you believe, like we do, that stablecoins will be the primary settlement currency of the future, then logic dictates that stablecoins will be systemic to the global financial system. Consequently, regulators will want to ensure that stablecoins do not fail.Mountain Protocol is prudentially regulated by the Bermuda Monetary Authority, arguably the best regulator today for yield-bearing stablecoins. USDT and USDC, the current market leaders that account for about 90% of stablecoin circulating supply, are not. Unlike securities regulation, which is focused on disclosure, prudential regulators go a step further to proactively manage risk to ensure these systemically important products do not fail. Prudential regulation requires banks, payment companies, insurers and other financial organizations to measure and manage risks across different scenarios, hold adequate capital and liquidity as dictated by stress tests, and have in place workable recovery and resolution plans. Getting prudentially regulated is a non-trivial endeavor, which takes ~12-24 months to secure and requires extensive work to maintain, including financial, risk, compliance, governance, cyber external audits, regulatory reporting, detailed governance processes and more.