Stablecoin Yield Guide: Analysis of 8 Types

The cryptocurrency market has been performing mediocrely lately, and steady returns have once again become a market demand. Combining recent investment experience and research on the stablecoin field, this article explores the classic topic of stablecoin returns.

The main categories of stablecoins in the current cryptocurrency market include:

• The highest market share USDT: widely applicable scenarios, users expect its scale advantages and backing capabilities.
• Compliant stablecoins pegged 1:1 to fiat currency: represented by USDC, supporting multi-chain and application scenarios.
• Over-collateralized stablecoins: mainly DAI and USDS, with LUSD and others as competitors.
• Synthetic asset stablecoin: represented by USDe.
• RWA projects stablecoins backed by US Treasury assets: represented by USD0 and USDY.
• Algorithmic stablecoin: UST has been fundamentally falsified after its collapse, while FRAX still has certain applications.
• Non-USD stablecoins: Euro and other fiat stablecoins, limited impact.

The main models for earning income from stablecoins currently are:

1. Stablecoin Lending
2. Liquidity Mining Rewards
3. Market Neutral Arbitrage Returns
4. US Treasury Yield RWA Project
5. Structured Products of Options
6. Tokenization of Earnings
7. A basket of stablecoin yield products
8. Stablecoin Staking Rewards

The following analyzes various types of profit models in detail:

1. Stablecoin Lending

Lending is the most traditional financial income model, with the income coming from the interest paid by borrowers. It is necessary to consider platform security, default risk, and income stability. It mainly includes:

• Centralized platform: Leading exchange's current financial products
• Decentralized protocols: Aave, Sky Protocol, Morpho Blue, etc.

The leading platforms have relatively high security. During a bull market, returns can reach over 20%, while in a bear market, they range from 2% to 4%. Fixed-rate products sacrifice liquidity for higher returns.

In addition, there are some innovative models:

• Fixed rate lending protocol such as Pendle
• Introduce interest rate tiering and subordination mechanism
• Provide leveraged lending
• Protocols for Institutional Clients
• RWA will bring real-world lending on-chain

Lending as a mainstream model will continue to carry the largest amount of capital.

2. Liquidity Mining Rewards

Taking Curve as an example, the earnings come from AMM trading fees and token rewards. Curve has high security but low returns (0-2%). Other DEXs have security concerns or risk of losses. Currently, stablecoin pools are still primarily based on lending.

III. Market Neutral Arbitrage Returns

Widely used by professional trading institutions, achieving market neutrality through long and short hedging. Mainly includes:

• Funding Rate Arbitrage: Utilizing the price difference between perpetual contracts and spot market.
• Spot and futures arbitrage: Utilizing the price difference between spot and futures.
• Cross-exchange arbitrage: Utilizing price differences between different exchanges

Ethena moves funding rate arbitrage on-chain, allowing ordinary users to participate. Deposit stETH to earn USDe while opening a short position on the exchange to earn the funding rate. The main risk lies in long-term negative funding rates causing losses.

Pionex and others also offer similar products, but currently, there are still relatively few neutral arbitrage products aimed at retail.

4. US Treasury Yield RWA Project

Utilize over 4% U.S. Treasury yields, balancing safety and returns. Main projects:

• Ondo: USDY and OUSG, yield 4.25%
• Usual: USD0 and USD0++, the latter provides liquidity

The yield stabilizes at around 4%, and the additional gains are not sustainable. The USD0++ price decoupling event reflects the misalignment between bond attributes and market expectations.

5. Structured Products for Options

Mainly for selling put options ( Sell Put ) strategy, to earn option premiums. Suitable for range-bound markets, while one-sided markets can easily lead to missed opportunities or losses. Beginners are prone to falling into the trap of pursuing high option premiums while ignoring risks.

The Shark Fin strategy launched by OKX and others uses a combination of Bear Call Spread + Bull Put Spread to earn premiums within the range, while hedging outside the range for no additional profit.

On-chain options products have a lower maturity, and Ribbon Finance and others are no longer leading.

6. Tokenization of Earnings

The Pendle protocol splits yield-bearing assets into PT( principal ) and YT( yield ). Main strategy:

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

The returns are considerable but the duration is short, requiring frequent operations.

7. A Basket of Stablecoin Yield Products

Ether.Fi launches Market-Neutral USD pool, integrating various stablecoin yield products:

• Lending ( Syrup, Morpho, Aave )
• Liquidity Mining ( Curve )
• Funding Rate Arbitrage ( Ethena )
• Yield Tokenization ( Pendle )

Suitable for users who pursue stable returns but have insufficient capital.

8. Stablecoin Staking Rewards

The AO network accepts DAI staking to earn AO token rewards. The risk lies in the uncertainty of the AO network's development and token price.

In summary, understanding the sources of stablecoin yields and allocating them appropriately can help cope with the risks of the cryptocurrency market on a solid foundation.