RWAs You Can Use For Collateral: USDY on Drift
Unlocking a New Era for DeFi Derivatives and Prediction Markets
⚠️ NOTE: USDY is not, and may not be, offered, sold, or otherwise made available in the US or to US persons. USDY has not been registered under the US Securities Act of 1933, as amended ("Act") or pursuant to securities laws of any other jurisdiction, and may not be offered, sold or otherwise transferred in the US or to US persons unless registered under the Act or an exemption or exclusion from the registration requirements thereof is available. Additional restrictions may apply. Ondo USDY LLC, the issuer of USDY, is not registered as an investment company under the US Investment Company Act of 1940, as amended. Nothing herein constitutes any offer to sell, or any solicitation of an offer to buy, USDY. Acquiring USDY involves risks. A USDY holder may incur losses, including total loss of their purchase price. Past performance is not an indication of future results.
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The rapidly growing interest in prediction markets, accelerated by the recent election, is reshaping the consumer crypto landscape. Blockchain rails have enabled a new composable betting market, allowing users to enter and exit positions at will, similar to directional bets on assets via derivatives markets, but now for taking positions on outcomes. And Drift is at the forefront of both on Solana, with a leading derivatives trading platform now paired with a prediction market called Drift BET.
Drift is showcasing the best of DeFi innovation by enabling an array of predictive opportunities, and powering them with a broad suite of collateral options. Tapping into Ondo's USDY yieldcoin—a yield-bearing token backed by US Treasuries—Drift offers global (non-US) users an innovative collateral option for both spot and perpetual trades, and predictive bets, optimizing funding rates and prediction timelines, and providing a distinct edge over traditional collateral markets.
The Breakout Use Case: Prediction Markets with Yield-Generating Collateral
Prediction markets let users bet on outcomes, from asset prices to real-world events. To make a bet, users must put up collateral, which is typically locked in stablecoins. During the duration of a user’s open position, funds are idle, and typically cost the user fees to enter or exit. Therefore, a breakeven trade is often not breakeven due to fees. But tapping into USDY as collateral, users can now place predictions on Drift with US Treasuries-backed assets.
Imagine a user betting on the outcome of a sporting event or the future price of an asset. Instead of locking that bet into an idle asset, the user can make that prediction on Drift with USDY, allowing them to capture passive returns from US Treasuries-backed assets while participating in the market. This setup makes it possible to offset the costs associated with prediction markets, like fees or margin requirements, and gives users a slight edge over the market.
Offsetting Funding for Derivatives Traders
Where prediction markets are experiencing a surge in demand, derivative markets have long been popular because they allow users to make predictions on price action. However, collateral for derivatives can be costly for traders, and their collateral sits idle when using stablecoins. In May 2024 alone, approximately $180 billion was required as collateral for crypto derivatives, and this requires funding rates owed to the platform to keep the position open. Using USDY as collateral can offset these rates to a degree by returning yield to traders, and reducing the net cost of holding collateral.
For instance, consider a trader using $5 million of USDY instead of stablecoins as collateral for a large position on Drift. At a 4.9% APY, USDY can generate $245,000 annually, which directly reduces the cost burden on the trader. For derivative traders, who can face funding fees reaching 10% annually, this yield becomes an essential benefit, softening the cost of maintaining an open position.
The Drift Advantage with USDY
By offering USDY as collateral, Drift gains a significant edge in the derivatives and prediction market space, attracting users who recognize the capital efficiency and yield-generating potential of tokenized RWAs. Drift's forward-thinking approach enables traders and prediction market participants alike to optimize their capital efficiency, providing a better experience for users and creating an edge not found on typical betting or derivatives platforms.
Real World Assets Powering DeFi Markets
Integrating USDY on Drift bridges DeFi with traditional finance, showcasing the clear advantages of tokenized RWAs. As DeFi moves toward functional use cases, yield-bearing assets like USDY are set to drive these markets forward. Ondo Finance continues to lead the way in tokenized yield solutions, helping platforms like Drift offer a superior trading experience through secure, yield-bearing collateral.