Stablecoin Yield Guide: Which of the 8 Types is the Best?

Recently, the performance of the cryptocurrency market has been average, and conservative and stable returns have again become a market demand. This article will explore the classic yet evergreen topic of stablecoin yields, combining recent investment experiences and research findings in the field of stablecoins.

The main types of stablecoins in the current cryptocurrency market are as follows:

• The USDT with the highest market share: It has a wide range of application scenarios, and users expect its scale to ensure safety.
• A compliant stablecoin pegged to fiat currency 1:1: USDC supports the most chains and application scenarios, making it a true on-chain dollar.
• Over-collateralized stablecoins: primarily DAI and its upgraded USDS; LUSD becomes a competitor with an innovative model.
• Synthetic asset stablecoin: the most representative is Ethena's USDe.
• RWA projects stablecoins with US Treasury as underlying assets: USD0 and USDY are the most representative.
• Algorithmic stablecoins: UST has basically been discredited after its collapse, while FRAX still has some application scenarios.
• Non-U.S. dollar stablecoins: Currently have little impact on the U.S. dollar-dominated market.

Currently, the main models for earning income through stablecoins are as follows:

1. Stablecoin Lending

Lending is the most traditional financial income model, with income derived from the interest paid by borrowers. Considerations include platform security, default risk, and income stability. Major products include:

• Current financial products from leading exchanges
• Top DeFi protocols such as Aave and Sky Protocol

When the market rises, returns can reach over 20%, while during calm periods, they are maintained at 2%-4%. Fixed-rate products usually yield higher than current deposits, but cannot capture the surges in current deposit returns.

Innovative points include: fixed-rate DeFi protocol, interest rate tiering mechanism, leveraged lending, and lending aimed at institutional clients.

Lending, as the most mainstream stablecoin yield model, will continue to carry the largest capital volume.

2. Liquidity Mining Rewards

Taking Curve as an example, the income comes from AMM trading fees and token rewards. Curve is the benchmark for stablecoin DEXs, but the yield is relatively low (0-2%). Other DEX stablecoin pools have security risks and do not comply with prudent investment principles. Currently, DeFi stablecoin pools are still mainly based on lending models.

3. Market Neutral Arbitrage Returns

The main arbitrage strategies include:

• Funding rate arbitrage: exploiting the price difference between perpetual contracts and spot
• Arbitrage: Utilizing the price difference between the spot and futures markets
• Cross-exchange arbitrage: take advantage of price differences between different exchanges.

Ethena brings funding rate arbitrage on-chain, allowing ordinary users to participate. The main risk lies in long-term negative funding rates leading to losses. Ethena performs well in terms of data transparency.

Apart from Ethena, there is currently a lack of market-neutral arbitrage products in the market that retail customers can participate in with a low threshold.

4. U.S. Treasury RWA Project Revenue

U.S. Treasuries, as standardized high-liquidity assets, are one of the few viable RWA businesses. Major projects include:

• Ondo's USDY and OUSG, yield 4.25%
• Usual's USD0 and USD0++, providing liquidity for US Treasuries

The yield of the US Treasury RWA project remains stable at around 4%, with additional high returns mainly coming from token incentives, which are not sustainable. In the future, there may be a risk of a slow decline in yields.

5. Structured Products of Options

Originating from the "selling options to earn premiums" strategy. The U-based strategy mainly involves the Sell Put strategy, earning option premiums or buying coins at a low price. It is suitable for range-bound market conditions, while single-sided market conditions carry higher risks.

The Shark Fin strategy on platforms like OKX uses a combination of Bear Call Spread + Bull Put Spread, suitable for users who prioritize capital safety.

The maturity of on-chain options products needs to be improved.

6. Tokenization of Earnings

The Pendle protocol splits yield-bearing assets into PT( principal ) and YT( yield ). The main strategies include:

• Hold PT to earn fixed income
• Purchase YT to stake future earnings
• Sell YT to lock in current earnings
• Provide liquidity for PT and YT to earn returns

The Pendle stablecoin pool offers substantial yields, but the duration is short, requiring frequent operations.

7. A Basket of Stablecoin Yield Products

Ether.Fi has launched a Market-Neutral USD pool, combining various yield models such as lending, liquidity mining, and arbitrage. It is suitable for users seeking stable on-chain returns but lacking sufficient capital.

8. Stablecoin Staking Rewards

The AO network accepts DAI staking to earn AO token rewards, which can be seen as an alternative stablecoin yield model. The risk lies in the uncertainty of the AO network's development and the token's price.

Understanding the sources of stablecoin yields and configuring them appropriately can provide a solid financial foundation for cryptocurrency investments.