Pareto Launches USP Synthetic Dollar, Bridging Institutional Investors and DeFi

Pareto, a private credit marketplace, has introduced a new synthetic dollar called the USP synthetic dollar, which is fully backed by real-world private credit. This innovative financial instrument aims to bridge the gap between institutional investors and decentralized finance (DeFi) opportunities. To mint USP, users must deposit stablecoins such as USDC and USDT, which are then held as collateral in Pareto’s credit vaults. These funds are lent to vetted institutional borrowers, generating yields for participants. The USP synthetic dollar is designed to maintain its peg to the US dollar through a process called "native backing," where each USP token is minted only when an equivalent amount of USDC or USDT is deposited, ensuring full collateralization. Additionally, Pareto has implemented an arbitrage mechanism and a protocol-funded stability reserve to support the dollar peg’s ongoing stability and act as a buffer in case of borrower defaults.

The introduction of the USP synthetic dollar highlights the expanding role of stablecoins in global finance. By providing a regulated onchain entry point into real-world asset (RWA) credit markets, Pareto enables institutional investors to participate in the tokenization industry, which has seen rapid growth over the past year. Recent examples of private credit tokenization include Tradable’s portfolio of 30 credit positions and Apollo’s Diversified Credit Securitize Fund. Pareto acknowledges the potential risks associated with connecting DeFi to the often opaque private credit sector but emphasizes its approach to risk management. The company was specifically built to address the inefficiencies and opacity that have historically plagued traditional credit markets. By bringing private credit onchain, Pareto enables real-time transparency, programmable risk management, and automated settlement while reducing counterparty risk and operational friction.

The USP synthetic dollar is part of a broader trend of innovation in the stablecoin market. Although synthetic dollars account for a small fraction of the total stablecoin market, they are driving innovation by introducing new methods for creating and managing fiat-pegged assets. Ethena, the largest synthetic dollar network by market capitalization, offers Staked USDe (sUSDe) tokenholders an annual percentage yield. Despite the success of synthetic variants, collateralized stablecoins continue to dominate the market. US regulators are keen to preserve this position through proposed legislation like the GENIUS Act and STABLE Act. The US government has recognized the role of stablecoins as a way to support the dollar’s worldwide use as a reserve currency. The total stablecoin market is approaching $250 billion, with Tether accounting for roughly $150 billion. US regulators have prioritized stablecoin legislation because they know there’s more at stake than just crypto. This is about setting the conditions for regulated US financial firms to lead on stablecoins and preserve the primacy of the US dollar globally.