Before You Hold USDB: A Closer Look at Its Backing and Redemption

USDB is gaining traction in the Bitcoin ecosystem. Over the past few days alone, I have come across five wallets that already support it. Flashnet - the company most actively promoting USDB - recently announced a passive income program where you earn rewards simply for holding USDB. What is more, those rewards are promised to be paid in Bitcoin.

That sounds appealing, so I decided to take a closer look and see whether this stablecoin is actually worth paying attention to.

Here is what I found.

• USDB is a regulated stablecoin issued on Spark, a Bitcoin L2.
• The main issuer is Brale, a US-based company.
• The stablecoin is backed by short-term US government securities and so-called cash equivalents.
• However, all of this is undermined by one crucial detail: you cannot redeem USDB for US dollars directly with the issuer. That option may only be available to institutional users.

What is the point of collateral if you cannot actually claim it? A 1:1 backing does not automatically mean the USDB/USD exchange rate will stay at 1:1.

To exit USDB into dollars, you need to find someone willing to buy it from you for a dollar. As long as there are enough buyers, the peg can hold. But if demand is not sufficient to absorb tokens from everyone who wants to sell, you will either have to accept a lower price or try to find an institutional player willing to redeem your USDB for you. Naturally, that would be on the institution's terms - KYC, fees, and other conditions included.

Overall, I find it quite surprising that this stablecoin is being pushed so aggressively within the Bitcoin community. Reliability is highly valued there, yet there are much more robust alternatives like DAI and Liquity USD, which can always be redeemed for the assets backing them.

Yes, those stablecoins exist outside the Bitcoin ecosystem. But Bitcoin can still be easily exchanged for both DAI and LUSD. Rabbit.io can always help you with that.