Stablecoin Rewards Divided into Reserve Asset and Activity Income

The stablecoin rewards of centralized exchanges have been divided into reserve asset income and exchange market activity income. The Bank for International Settlements (BIS) analyzed this structure in its "BIS Bulletin No. 125" published on June 19. Reserve asset-based rewards move in tandem with policy interest rates, while activity-based rewards exhibit greater volatility. The reserve asset-based model involves the exchange passing on income generated from government bonds, reverse repurchase agreements, and bank deposits held by the issuer to the holders. Coinbase's USD Coin (USDC) rewards were cited as a representative example. The activity-based model uses income obtained from lending, margin financing, and arbitrage by the exchange as the source of rewards, with Binance's Tether (USDT) rewards presented as an example. The Bank of England stated on June 22 that while it will maintain its policy of not paying interest to holders in its draft rules for systemic stablecoin issuers, activity-based rewards may be permitted. This discussion relates to how countries classify stablecoins as means of payment and investment products.

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