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Are USDC Yield Funds The New TIPS?

How Modern Inflation-Protection Alternatives Can Complement Your Portfolio

Jun 17, 2022

This week, the Federal Reserve raised interest rates by 75bps, the biggest rate hike since 1994. This move follows May’s Consumer Price Index (CPI) report, which landed the United States at a 40-year high of 8.6% inflation. With near-record inflation persisting and monetary policy in flux, investors want more options. And rightly so. Fortunately, full-reserve stablecoin yield funds present a new way to combat inflation, and a modern alternative to Treasury Inflation-Protected Securities (TIPS).

"Digital asset havens such as our USDC Yield Fund are a great place to preserve capital while waiting for the inevitable buy opportunities to emerge, once the carnage is over."

— Adil Abdulali, Chief Investment Officer at Securitize Capital

Historically, TIPS have enabled investors to moderate inflation. Matured TIPS return investors’ principal adjusted for inflation in exchange for earning less yield than traditional treasuries. However, as 40-year inflation highs carry the cost of goods and services even higher than recent CPI estimates anticipated, the benefits of TIPS are getting tested, as well as the ultimate returns they offer. And this is where full-reserve stablecoin yield funds come into play.

Because U.S. Dollars are considered safe haven assets for investors around the globe, the demand for dollars and full-reserve stablecoins like USD Coin (USDC) remains strong. This strong demand can translate into yield-generating lending opportunities, and a new way to preserve capital during the present downturn.

With USD’s relative strength over other fiat currencies and USDC’s global popularity persisting, lending USDC has the potential to generate positive yield. While USDC is composed of short-term U.S. Treasuries and cash equivalents, there remain regulatory, market, and liquidity risks that do not make USDC yield funds as risk-free as TIPS. With that in mind, using modern USDC yield funds gives accredited and institutional investors the ability to save long-term and redeem USDC yield monthly, a striking alternative to traditional investments.

To learn more about digital assets and stablecoin yield funds, connect with Securitize Capital’s CIO, Adil Abdulali.

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