How GUSD Works – Real-World Asset Backing and Yield Mechanism

PS: Rewatch our X Space explaining GUSD here -> https://x.com/i/spaces/1OdKrOlrZgPGX/peek

Real-World Asset (RWA) Backing: GUSD is fully backed by real-world assets, which primarily include as said, U.S. Treasury bonds, and other low-risk financial instruments. In crypto, real-world assets (RWAs) refer to tokenized versions of traditional financial assets or physical assets. According to Chainlink’s definition, RWAs are digital tokens that represent physical and traditional financial assets, such as currencies, commodities, equities, and bonds. By backing GUSD with RWAs like U.S. Treasuries, Gate.com ensures that every GUSD token corresponds to an equivalent value in stable, interest-generating assets in the traditional financial system. This setup has two major benefits:

• Safety of Funds: U.S. Treasury bonds are considered among the safest assets globally. By holding these as reserves, GUSD’s value is secured by the credit of the U.S. government. This greatly reduces default risk or the risk of GUSD “de-pegging,” since the backing assets are very stable.
• Interest Generation: Unlike cash sitting idle, Treasury bonds pay interest. These interest earnings from the reserves provide the source of yield that makes GUSD an investment vehicle. Essentially, when you hold GUSD, you indirectly hold a piece of a Treasury bond portfolio that earns interest continuously.

Yield Mechanism – How Does GUSD Generate and Distribute Interest? Traditional stablecoins (like USDT/USDC) might be backed by interest-bearing assets too, but users of those stablecoins don’t directly receive the interest – the issuing company does. GUSD is different: it gives the interest benefit to the users. GUSD is structured as an appreciating investment certificate rather than a static $1 token. Here’s how it works:

• When you mint or obtain GUSD, you typically get 1 GUSD for each $1 worth of USDT or USDC you provide (we’ll cover minting in Module 3). At this moment, your GUSD is worth $1 and backed by $1 of real-world assets.
• Over time, the underlying assets (e.g. the Treasury bonds) earn interest – say a certain annual percentage yield (APY). GUSD accumulates this yield internally. You do not have to claim interest daily or stake GUSD to earn this base interest – it’s built into the product.
• Instead, the interest is realized when you redeem GUSD. Upon redemption, you receive back your principal plus the accrued interest in the form of another stablecoin (USDC). For example, if you minted 100 GUSD and held it during a period where the underlying assets earned 20% in total, when you redeem you would get 120 USDC in return (your $100 initial value + $20 interest). In other words, 1 GUSD grew to be worth $1.20 over that time. This mechanism means GUSD effectively appreciates in value while still being stable-backed – a novel concept!

To clarify: On a day-to-day basis, GUSD’s market price is intended to remain around $1 for ease of use in trading. The growth in value from interest is accounted for at redemption. This is similar to how some decentralized finance (DeFi) tokens work (for instance, certain yield-bearing tokens). The key point is that holding GUSD is like holding a continuously accruing savings bond – your holdings are stable but growing in the background. By contrast, holding a regular stablecoin like USDT just preserves $100 as $100, with no growth, whereas holding GUSD is equivalent to holding a $100 portfolio of U.S. Treasury assets that slowly increases in value.

Minting and Redemption Process: GUSD can be created (minted) and redeemed through Gate.com:

• Minting GUSD: Users can create new GUSD by converting either USDT or USDC 1:1 on Gate.com’s platform. When you mint, Gate.com takes your USDT/USDC and allocates it into the reserve of real-world assets, issuing you fresh GUSD in return. This starts your GUSD earning journey with a fully backed token.
• Redemption of GUSD: When you decide to convert GUSD back, Gate.com will redeem your GUSD and return the value in USDC (USD Coin). They have chosen USDC for redemption to ensure you receive a highly reputable, fully-reserved stablecoin in return, which you can easily swap further into fiat or other cryptos as needed. Upon redemption, you get 100% of your principal plus any accrued interest in USDC. (USDC is used likely due to its transparency and stability; even if you originally minted with USDT, the redemption is standardized in USDC.)

Gate has committed to transparency and security for GUSD. We plan to regularly disclose proof of reserves and details of the custodian institutions holding the RWA backing. This will allow users (and auditors) to verify that every GUSD in circulation is fully backed by real assets – ensuring a 100% reserve ratio at all times. Transparency is crucial because it builds trust that GUSD is not under-collateralized. Gate’s approach addresses past concerns seen with some stablecoin issuers by providing public audits/proofs for GUSD’s reserves.

With the inner workings of GUSD explained, you can see it’s more than just another stablecoin – it’s a stable investment instrument. Next, let’s move on to how you can get GUSD in your hands and the various ways to use it on the Gate.com platform.