Stablecoin Yield Guide: In-Depth Analysis of 8 Types

The recent performance of the cryptocurrency market has been lukewarm, and conservative and stable returns have once again become a market demand. Combining years of investment experience and research in the stablecoin field, this article will delve into the classic topic of stablecoin returns.

The stablecoins in the current cryptocurrency market can be mainly divided into the following categories:

• USDT: Widely applicable scenarios, users hope for its scale effect and bottom-line capability.
• Compliant stablecoin: represented by USDC, is the true on-chain dollar
• Over-collateralized stablecoin: mainly using DAI and LUSD
• Synthetic Asset Stablecoin: represented by USDe
• US Treasury RWA stablecoin: represented by USD0 and USDY
• Algorithm stablecoin: Basically discredited after the collapse of Terra
• Non-US Dollar stablecoins: Limited impact

The main models for earning yield from stablecoins currently include:

1. stablecoin lending
2. Liquidity Mining
3. Market Neutral Arbitrage
4. US Treasury RWA Project
5. Structured Products of Options
6. Tokenization of Earnings
7. A Basket of Stablecoin Yield Products
8. stablecoin Staking

The following will analyze each income model in detail:

1. Stablecoin Lending

Lending is the most traditional financial earning model, with earnings coming from the interest paid by borrowers. It mainly includes:

• Centralized platform liquidity wealth management products
• Leading DeFi lending protocols such as Aave, Sky Protocol, etc.

Features:

• The leading platforms have higher security.
• The return during a bull market can reach over 20%, while during a bear market it is maintained at 2-4%.
• Fixed-rate products sacrifice liquidity but offer stable returns.

Innovation point:

• Fixed-rate lending protocols like Pendle
• Introduce interest rate layering and subordination mechanism
• Leverage Lending
• Lending agreement for institutional clients
• RWA will put real-world lending on the blockchain.

The lending business carries the largest capital volume and is the main stablecoin revenue model.

2. Liquidity Mining Rewards

With Curve as a representative, the revenue comes from trading fees and token rewards.

Features:

• High security but lower returns (0-2%)
• Small amounts of funds may not cover the Gas fee.
• Other DEXs have security risks.

Currently, the DeFi stablecoin pool is still mainly based on lending models, and Curve 3Pool only ranks in the top twenty for TVL.

3. Market Neutral Arbitrage Returns

Market-neutral strategies are widely used by professional trading institutions, mainly including:

1. Funding Rate Arbitrage:

   • Arbitrage between perpetual contracts and spot price differences
   • The Ethena protocol brings this model on-chain.

2. Spot and Futures Arbitrage:

   • Arbitrage using basis
   • Suitable for large capital investors who can accept a lock-up period.

3. Cross-exchange arbitrage:

   • Utilize the price difference between different exchanges
   • The current mainstream trading pairs have very small price differentials, with a high threshold.

Others include triangular arbitrage, cross-chain arbitrage, etc.

As a representative project, Ethena has brought the funding rate arbitrage model on-chain, featuring the following characteristics:

• The source of income is transparent
• There is a third-party custody mechanism
• The risk mainly lies in the scenario of long-term negative funding rates.

4. US Treasury RWA Projects

Utilizing the high interest rate environment of the US dollar to tokenize US Treasury yield. Main projects:

• Ondo: USDY and OUSG, yield approximately 4.25%
• Usual: Besides USD0, there are also liquidity tokens USD0++

Features:

• The yield stabilizes at around 4%
• High returns mainly come from token incentives, which are unsustainable.
• Facing the risk of a decline in returns but not to the point of a blowout.

The USD0++ price decoupling event of Usual reflects the misalignment between bond attributes and market expectations, but its liquidity design is worth learning from.

V. Structured Products of Options

Main Strategy:

• Sell Put: Earn option premium, suitable for range-bound market conditions.
• Bear Call Spread + Bull Put Spread: Principal Protection Product

Notice:

• Beginners can easily fall into the trap of pursuing high option premium returns.
• The market's one-sided trend is not suitable for selling options strategies.

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

6. Tokenization of Earnings

Taking Pendle as an example, split the yield-bearing asset into PT and YT:

• PT: represents the principal, redeemable at 1:1 upon maturity
• YT: Represents future earnings, decreasing over time

Main Strategy:

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

Features:

• The yield is considerable but requires frequent operations.
• The product terms are generally shorter.

7. A Basket of Stablecoin Yield Products

Represented by Ether.Fi, providing a variety of stablecoin yield combinations:

• Lending and Earning Interest
• Liquidity Mining
• Funding Rate Arbitrage
• Yield Tokenization

Suitable for users pursuing stable returns with insufficient funds.

8. Stablecoin Staking Yield

The AO network accepts DAI staking to earn AO token rewards, with the core risk being the uncertainty of the AO network's development.

Overall, understanding the principles and risks of various stablecoin yield models, and reasonably allocating assets, can provide stable returns while ensuring safety, laying a solid foundation to cope with the uncertainties of the crypto market.