Pareto Launches USP Synthetic Dollar, Connecting Institutional Investors to DeFi

Pareto, a private credit marketplace, has introduced a new synthetic dollar called the USP synthetic dollar. This innovative financial instrument is designed to connect institutional investors with decentralized finance (DeFi) opportunities, marking a significant development in the stablecoin sector. The USP synthetic dollar is fully backed by real-world private credit, providing a stable and secure investment option for institutional investors.

The USP synthetic dollar is minted by depositing stablecoins such as USDC and USDT, which are then held as collateral. This process ensures that each USP token is backed 1:1 by the stablecoins used during the minting process. The deposited funds are placed into Pareto’s credit vaults and lent to vetted institutional borrowers, generating yields for participants. To maintain its peg to the US dollar, Pareto employs a "native backing" process, where each USP token is minted only when an equivalent amount of USDC or USDT is deposited. An arbitrage mechanism also supports the dollar peg’s ongoing stability. Additionally, Pareto has established a protocol-funded stability reserve to act as a buffer in case of borrower defaults.

This move by Pareto highlights the expanding role of stablecoins in global finance and provides institutional investors with a regulated onchain entry point into real-world asset (RWA) credit markets. The tokenization of private credit has seen rapid expansion, with recent examples including Tradable’s portfolio of 30 credit positions and Apollo’s Diversified Credit Securitize Fund. Pareto acknowledges the potential risks of connecting DeFi to the often opaque private credit sector but emphasizes its approach to risk management. By bringing private credit onchain, Pareto aims to enable real-time transparency, programmable risk management, and automated settlement while reducing counterparty risk and operational friction.

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 of 10%. 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. Stablecoins are the second-most adopted blockchain use case behind Bitcoin, and US dollar-pegged stablecoins account for a significant portion of the M2 money supply. US regulators have prioritized stablecoin legislation to set the conditions for regulated US financial firms to lead on stablecoins and preserve the primacy of the US dollar globally.