Wave Financial LLC is looking to grab the attention of yield-seeking investors with the launch of a stablecoin fund that it says could yield 12% annually.
The Wave Stable Asset Yield Fund (or SAYF) will hold USDC, a currency backed by Circle Internet Financial and Coinbase, as well as USDT, or Tether, among other stablecoins. It could generate a yield of 8% to 12% and will also offer a monthly dividend, according to a press release Tuesday.
“A lot of our investors are coming to us to ask for higher-yielding instruments,” Ben Tsai, co-founder and president of Wave, said by phone. “They want low volatility, they want U.S.-dollar-correlated returns, but they want very high yield and they want it with liquidity.”
The fund is making its debut into a volatile market, where prices for cryptos large and small have plummeted. Bitcoin, the largest digital coin, has lost almost 30% over the past month, and there’s been trouble in the stablecoin markets too. The closely watched stablecoin TerraUSD got propped up by its backers after losing its peg to the dollar.
Wave’s new fund, its eighth, is set up for monthly subscriptions and redemptions, so investors are able to move in and out easily, which makes it convenient to use, Tsai said. The product is meant for qualified clients in the U.S. and internationally.
Eye-Popping
The fund’s target yields are eye-popping in a low-rate, high-inflation environment. Tsai says the company will lend out investor cash to generate the yields. Wave will work with lending and borrowing desks that are active in this space.
Yields in decentralized finance, or DeFi, can be higher than in traditional markets because DeFi platforms tend to subsidize the lending and borrowing in order to incentivize people to use them.
Stablecoins are a type of cryptocurrency that is pegged to traditional currencies, like the dollar. They’re seen as being less volatile than traditional digital assets like Bitcoin, though they’re not without controversy. Tether’s reserves, for instance, largely remain a mystery, though they include billions of dollars of short-term loans to large Chinese companies, Bloomberg News reported last year.
The Federal Reserve has also flagged concerns over financial risks posed by stablecoins. The coins are “vulnerable to runs” and there’s a lack of transparency around the assets used to back the tokens, it said in a report released Monday.
There’s always the risk a stablecoin de-pegs, Tsai said. In addition, some platforms come with cybersecurity risks.