Overview

In recent years, the rap id advancement of blockchain technology and decentralized finance (DeFi) has made stablecoins a vital part of the cryptocurrency market, bridging traditional finance and the digital economy.

However, while traditional stablecoins like USDT and USDC excel at maintaining value stability, they often do not provide additional yields for their holders, which limits their appeal for investors.

The Pi Protocol has been developed to tackle this issue, introducing the world’s first yield-generating stablecoin, USP. This stablecoin aims to offer users a reliable way to store value while also allowing their assets to grow. This article will elaborate on the design principles, operational mechanisms, and potential impacts of the Pi Protocol and its primary product, USP.

Source: https://piprotocol.com/

Overview of Pi Protocol

The Pi Protocol is a decentralized stablecoin protocol designed to overcome the limitations of conventional stablecoins, which typically serve only as a medium of exchange or a value anchor. By incorporating yield-generating properties, this protocol combines stability with investment potential. Its main product, USP (Unified Stablecoin Protocol), is pegged 1:1 to the US dollar and features a yield distribution mechanism that provides holders with additional returns. Unlike traditional stablecoins where the issuer primarily benefits from yields, the Pi Protocol returns these yields directly to USP holders, increasing user engagement and the protocol’s overall appeal.

Dual Mechanism of Stablecoins:

USP: Holds dollar value and can be used or traded in various contexts.

USI: Enhances yields and generates returns quietly.

Through smart contracts and DeFi yield optimization strategies, Pi Protocol ensures the stable value of USP while managing funds efficiently, thus creating a new decentralized stablecoin ecosystem.

Source: https://piprotocol.com/

Operating Mechanism of USP

As the flagship product of the Pi Protocol, USP utilizes a distinctive mechanism that maintains value stability and provides ongoing passive income for its holders.

1. Minting and Collateral Mechanism

Users can mint USP by staking popular assets like ETH, BTC, and USDC within the Pi Protocol. Unlike traditional stablecoins, the Pi Protocol invests these collateral assets into DeFi platforms like Aave and Curve, generating additional yields and improving capital efficiency.

2. Yield Distribution Mechanism

The Pi Protocol automatically distributes yields from the DeFi ecosystem to USP holders through smart contracts. Users do not need to take any manual action; their USP balance increases automatically, similar to the effects of compound interest.

3. Redemption and Liquidity

USP holders can redeem their collateral assets anytime, ensuring that funds remain liquid and retrievable, meeting market demands for flexibility.

Innovative Mechanisms

1. Over-Collateralization and Smart Contract Safeguards

USP employs an over-collateralization approach (similar to DAI), allowing users to deposit assets like ETH and BTC to mint USP. Smart contracts are responsible for:

Continuously monitoring the value of collateral assets to ensure the collateralization ratio stays above 100%;

Automatically activating liquidation processes during market fluctuations to maintain system solvency;

Reducing the opacity and trust issues commonly associated with centralized stablecoins.

2. Yield Token USI

The yield distribution mechanism of USP further enhances its attractiveness. When users mint USP, they also receive USI (Unified Stablecoin Interest), a token that represents their right to the underlying asset yields. For instance, if the protocol generates a 5% annual return through investments in government bonds or DeFi, these returns will be distributed proportionally to USI holders.

Users can hold USI to accumulate yields or trade it in the secondary market for liquidity. This mechanism not only increases the long-term value of holding USP but also introduces a new tool for capturing yields in the market.

3. Governance Token USPi

The Pi Protocol enables decentralized governance through the USPi governance token, allowing holders to vote on:

• Settings for risk parameters (such as collateral ratios and liquidation rules);
• The types of collateral assets that can be used;
• Adjustments to yield distribution ratios and other key decisions.

According to official sources, the team and advisors will receive 25% of the USPi tokens, while the remaining tokens will be gradually released through community incentives and pre-sales to balance development motivation with fair community governance.

Source: https://x.com/piprotocol/status/1892879513618375079

Team Background

Reeve Collins is the founder and chairman of Pi Protocol and a serial entrepreneur in the cryptocurrency industry.

Co-founder of Tether: In 2013, he spearheaded the creation of USDT, pioneering the tokenization of the US dollar and establishing the world’s most successful stablecoin. As of March 18, 2025, USDT boasts a market capitalization of $143.42 billion.

Co-founder of BlockV: In 2017, he raised $22 million through an ICO to launch the first-ever NFT creation platform, laying the groundwork for the Web3 ecosystem.

Founder of SmartMedia Technologies: Developed an enterprise-grade Web3 platform that provides NFT technology solutions for brands.

Other ventures: Earlier in his career, he founded several companies in the digital marketing space, including Traffic Marketplace and Pala Interactive.

Source: https://coinmarketcap.com/currencies/tether/ (March 18, 2025)

Bundeep Singh Rangar, the CEO of Pi Protocol, is a seasoned fintech entrepreneur with over 21 years of experience in finance, technology, and media.

Founder of PremFina: Established an insurtech company in London in 2015, challenging the UK’s insurance market duopoly and securing £27 million in funding from investors such as Rakuten and Draper Esprit.

CEO of Fineqia: Leads a digital asset investment company (CSE: FNQ), driving blockchain adoption and launching the first-ever DeFi Exchange-Traded Product (ETP).

Fundraising expertise: Has raised over $500 million in equity and debt financing across the UK, Europe, Canada, and India.

Educational background: Holds a Master’s degree in Journalism from Columbia University, a Bachelor’s degree from Laval University, and a diploma in Internet and Advertising from the University of California, Berkeley.

Other contributions: Regularly provides expert commentary on fintech trends for media outlets like Bloomberg and the BBC, invests in multiple fintech startups, and serves as an ambassador for equality in sports.

Source: https://piprotocol.com/

Roadmap

Q1 2025 – Beta Testing

Pi Protocol begins beta testing with an invitation-only approach to ensure the stability of its core functionalities while gathering user feedback to refine the protocol.

Q2 2025 – Official Launch & DEX Integration

Pi Protocol opens to the public, with its USP stablecoin becoming available on decentralized exchanges (DEX), enhancing liquidity and accessibility for users.

Q3 2025 – Governance Launch & USPi Token Listing

The introduction of Pi Protocol’s governance framework empowers the community with decision-making capabilities. At the same time, the USPi token is listed on exchanges to support ecosystem governance and incentivization.

Q4 2025 – Ecosystem Growth & Real-World Asset Integration

Pi Protocol expands its ecosystem by incorporating more real-world assets (RWA), enabling broader use cases for its stablecoin and fostering greater synergy between DeFi and traditional finance.

Source: https://piprotocol.com/

Advantages

1. Technological Innovations

Decentralized Minting via Smart Contracts: USP stablecoins are minted through a fully decentralized process powered by smart contracts. Users can deposit collateral, such as treasury bonds, to receive USP, and the system automatically assesses asset quality and ensures over-collateralization. This approach enhances both efficiency and transparency.

Multi-Chain Support: Initially deployed on Ethereum (with ~2.3-second transaction confirmation) and Solana (~0.4 seconds), Pi Protocol leverages the speed and scalability of these networks, supporting over 1.5 million daily transactions and increasing USP’s usability.

Tokenized Real-World Assets: By bridging traditional finance and blockchain through tokenizing assets like treasury bonds, Pi Protocol offers greater stability and compliance than traditional stablecoins like USDT.

2. Economic Model

Stable Returns with Growth Potential

Unlike conventional stablecoins, USP offers additional returns through the USI token, making it a reliable payment and storage tool and an attractive investment option for those seeking stability and growth.

Optimized Yield Management and Security

1.Smart Yield Optimization: Pi Protocol employs advanced yield strategies to maximize returns by automatically reallocating assets across DeFi platforms like Aave and Curve.

2 .Secure and Transparent Fund Management:

Professional Smart Contract Audits: All contracts undergo rigorous audits to ensure security and prevent vulnerabilities.

On-Chain Transparency: Users can track all returns and asset movements on-chain, ensuring full transparency and trust.

USP is more than just a stablecoin—it’s an innovative financial instrument offering returns, security, and decentralized governance.

Source: https://piprotocol.com/

3. Governance Framework

Decentralized Governance:

Pi Protocol empowers its community through the USPi governance token, allowing holders to participate in decision-making. This fosters trust and a sense of ownership, achieving true decentralization.

Transparent and Secure Mechanisms:

Over-Collateralization: Maintains the stability of USP’s value while reducing market volatility risks.

Smart Contract Automation: Eliminates centralization risks and ensures asset safety.

On-Chain Transparency: All fund flows are publicly accessible, enhancing trust and accountability.

Risks

Pi Protocol faces several risks, including:

Technological Risks: Vulnerabilities in cross-chain bridges and smart contracts.

Market Risks: Collateral asset volatility, market competition, and token concentration.

Compliance Risks: Regulatory changes that may impact operations.

1. Technical Risks

Smart Contract Risks

Smart Contract Vulnerabilities: Pi Protocol relies on smart contracts to issue USP on Ethereum and Solana. If these contracts contain vulnerabilities, hackers could exploit them, resulting in stolen funds or system disruptions. For instance, the Poly Network and Wormhole cross-chain bridges lost hundreds of millions of dollars due to similar issues.

Cross-Chain Security Concerns: Since USP operates on Ethereum and Solana, any vulnerabilities in cross-chain bridges or outages on Solana could compromise fund security and negatively impact user experience.

2. Market Risks

Collateral Asset Risks (RWA)

Volatility of Collateral Assets: USP is backed by real-world assets (RWAs) like U.S. Treasury bonds, money market funds, and insurance products. However, rising interest rates could devalue these assets, lowering the collateralization ratio and threatening the 1:1 peg stability.

Liquidity Crisis: A loss of market confidence could lead to mass redemptions, draining liquidity and creating systemic risks, similar to the collapse of TerraUSD (UST) in 2022.

Reliance on Oracles: USP depends on oracles to value its RWA collateral. If oracle data is inaccurate, delayed, or compromised, it could lead to incorrect collateralization calculations, triggering wrongful liquidations or broader systemic risks.

Source: https://x.com/piprotocol/status/1897061075381813304

Market Competition and Adoption Risks

USDT’s Market Dominance: As of March 18, 2025, Tether (USDT) holds a 62.77% market share, solidifying its position as the industry standard. USP faces major challenges in surpassing competitors like USDC, DAI, and USDe regarding trust and liquidity.

USDC’s Rapid Growth: USDC’s market share has grown from 20.2% in November 2024 to 25%, driven by transparent regulations and MiCA legislation, posing a threat to USP’s market position.

Trust and Transparency Issues: Pi Protocol may struggle to gain user trust without clear proof of reserves and regular audits, hindering its adoption.

Source: https://defillama.com/stablecoins

Yield Sustainability Risks

Sustainability of High Yields: USP distributes returns through USI tokens or USPi NFTs. If the revenue from RWA assets or platform operations cannot sustain these high returns, the system could face fund depletion, resembling the collapse of Ponzi schemes.

Impact of Market Conditions: Macro trends and Federal Reserve policies heavily influence USP’s yield generation. A decline in interest rates could weaken its ability to generate returns, eroding user confidence.

Governance and Centralization Risks

Centralized Governance: Governance rights are tied to USPi NFTs, but if the team controls more than 25% of the tokens, decision-making could favor core stakeholders at the expense of regular users.

For example, as of March 22, 2025, the top 10 holders of MakerDAO’s MKR tokens collectively own 47.75% of the supply, giving them disproportionate influence over governance decisions. This centralization could lead to opaque decision-making, governance manipulation, and conflicts of interest, undermining the protocol’s decentralized nature.

Team Management Risks: Pi Protocol is backed by Tether co-founder Reeve Collins, who initially lends credibility. However, poor management or internal disputes—like those seen in Tether’s early days—could destabilize the project.

Source: https://etherscan.io/token/tokenholderchart/0x9f8f72aa9304c8b593d555f12ef6589cc3a579a2?range=10

Economic Model Risks

Inflation and Value Dilution: Excessive USI rewards could lead to inflation, reducing the value of the stablecoin and negatively impacting long-term holders.

External Economic Risks: Global economic downturns or bond market crises may destabilize RWA-backed assets, potentially disrupting USP’s operations.

Pi Protocol’s USP is a yield-generating stablecoin that stands out for its innovative yield distribution and integration of RWAs. However, it also faces various risks, including smart contract vulnerabilities, collateral asset fluctuations, regulatory challenges, and market competition. Before engaging with USP, users should consider the following:

Transparency: Ensure the project team provides real-time reserve proofs and audit reports.

Diversify Risks: Avoid over-concentrating investments in a single stablecoin.

Track Development: Monitor Pi Protocol’s testnet performance and mainnet launch, expected in Q2 2025.

Source: https://piprotocol.com/

3. Compliance Risks

Regulatory Challenges

Regulatory Challenges: Pi Protocol must navigate compliance across multiple jurisdictions, including U.S. securities laws and EU MiCA regulations. Non-compliance could result in penalties or asset freezes.

Tighter Stablecoin Regulations: New U.S. laws and stricter global regulations are increasing pressure on stablecoins like Tether, which has faced criticism for a lack of transparent reserves and audits. By late 2024, Tether exited the EU market after failing to comply with MiCA requirements.

Source: https://lawandtech.ie/the-end-for-now-of-tether-in-europe-assessing-the-impact-of-the-markets-in-crypto-assets-regulation/

Stablecoin Comparison

As of March 18, 2025, the stablecoin market is dominated by Tether’s USDT, Circle’s USDC, Ethena’s USDe, and MakerDAO’s DAI, with a combined market cap exceeding $236 billion. Pi Protocol’s entry will further intensify competition.

Stablecoins fall into four main categories:

Centralized Stablecoins (USDT, USDC): Backed by fiat reserves, offering strong liquidity but reliant on centralized entities.

Decentralized Over-Collateralized Stablecoins (DAI): Backed by crypto assets, offering decentralization but less efficient in capital usage.

Yield-Generating Stablecoins (USP): Combining stability with DeFi yield distribution to generate returns for holders.

Algorithmic Stablecoins (FRAX): Adjusting supply algorithmically for high capital efficiency but with weaker stability.

Pi Protocol’s USP introduces a unique combination of decentralized collateral mechanisms and yield distribution, creating a stable and return-generating asset.

Source: https://www.coingecko.com/en/categories/stablecoins

Pi Protocol’s USP: Unique Advantages Over Other Stablecoins

1. Beyond Centralization: Unlike USDT and USDC, USP employs a decentralized collateral mechanism, reducing centralization risks while offering yield distribution to enhance asset value.
2. Advanced Yield Management: Compared to DAI, USP automates DeFi yield distribution, eliminating manual intervention and improving capital efficiency.
3. Stable and Reliable Returns: Unlike algorithmic stablecoins that heavily rely on market sentiment, USP is backed by real asset yields, ensuring stability and reducing volatility.
4. Future Scalability: Pi Protocol aims to integrate real-world assets (RWAs), potentially bridging the gap between decentralized finance (DeFi) and traditional finance (TradFi).

USP redefines stablecoins by combining stability, security, and yield generation, transforming them from simple payment tools into valuable investment assets.

Future Prospects

Pi Protocol plans to launch USP in the second half of 2025 officially. Early pilot tests will verify system stability and refine the user experience. The protocol’s roadmap includes the following key objectives:

Token Launch and Mainnet Deployment: Following successful testing, USP and USPi tokens will be fully launched to drive user adoption and boost market liquidity.

Ecosystem Growth: Collaborations with DeFi protocols and traditional financial institutions will expand USP’s use cases, such as serving as collateral, a trading medium, or a yield-generating tool.

Global Expansion: Pi Protocol aims to promote USP worldwide, ensuring compliance while entering new markets.

Reeve Collins, the founder of Pi Protocol, described it as “the evolution of stablecoins.” This statement reflects the team’s confidence in USP and their forward-looking perspective on the crypto market. Yield-generating stablecoins like USP have the potential to revolutionize stablecoins by transforming them from storage tools into investment assets, delivering greater value to users.

Source: https://piprotocol.com/vision/

Impact on the Crypto Market

1. Innovating Stablecoins: USP combines stability with growth potential, attracting return-seeking investors.
2. Driving DeFi Adoption: By supporting DeFi applications like lending and staking, USP promotes the growth of the DeFi ecosystem.
3. Building Trust and Transparency: Decentralized and transparent smart contracts foster greater user trust and eliminate human interference.
4. Diversified Stability: USP uses a diversified asset portfolio to maintain stability, mitigating risks from single-asset volatility.
5. Attracting New Participants: Offering yield opportunities encourages more users to enter the crypto market, driving overall growth.
6. Regulatory Alignment: Pi Protocol’s design enhances stability and could serve as a model for regulatory-compliant crypto development.

Pi Protocol enhances market maturity, attracts new investors, and improves transparency and stability in the crypto space by introducing an innovative yield-generating stablecoin and a decentralized framework.

Conclusion

Pi Protocol’s USP brings fresh energy to the stablecoin market with its innovative yield-generating model. Its over-collateralization mechanism, automated yield distribution, and decentralized governance showcase the transformative potential of blockchain in finance. However, Pi Protocol must prove its value in a competitive landscape as a new project.

The success of USP will depend on its technical implementation, community engagement, and ability to navigate regulatory challenges. Regardless of the outcome, Pi Protocol’s efforts provide valuable insights into the evolution of the crypto economy and are worth following closely.

USP offers a compelling asset management solution with its ability to generate automatic yields while maintaining price stability. As DeFi continues to evolve, Pi Protocol and its USP could play a pivotal role in shaping the future of stablecoins.