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

Recently, the performance of the cryptocurrency market has been mediocre, and conservative and stable returns have once again become a market demand. This article will explore the age-old yet evergreen topic of stablecoin yields, combining the author's investment insights from recent years and research findings in the stablecoin field.

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

• The USDT with the highest market share but conditional compliance
• Compliant stablecoins pegged to fiat currency at a 1:1 ratio, such as USDC, PayPal USD, etc.
• Over-collateralized stablecoins, such as DAI, LUSD, etc.
• Synthetic asset stablecoin, such as USDe
• RWA projects stablecoins backed by underlying assets of US Treasury bonds, such as USD0, USDY
• Algorithm stablecoin (basically eliminated by the market)
• Non-USD stablecoins (limited impact)

Currently, there are mainly the following types of models for earning income through stablecoins.

1. Stablecoin Lending

Lending is the most traditional financial profit model, with earnings coming from the interest paid by borrowers. Considerations include platform security, borrower default risk, and yield stability. Major products include:

• Centralized exchange's flexible wealth management products
• Leading DeFi protocols such as Aave, Sky Protocol, etc.

Lending yields can reach over 20% in a bull market, while in a bear market they remain at 2%-4%. Some innovations include fixed-rate lending, tiered interest rates, and leveraged lending.

2. Liquidity Mining Rewards

Taking Curve as an example, the yield comes from AMM trading fees and token rewards. Curve has high security but lower yields (0-2%). Other DEXs have issues with insufficient yields or security risks, which are not suitable for conservative financial management.

3. Market Neutral Arbitrage Returns

Mainly includes:

• Funding rate arbitrage: Utilizing the price difference between perpetual contracts and spot
• Spot and futures arbitrage: utilizing basis
• Cross-exchange arbitrage: Utilize the price differences between different exchanges

Ethena brings the funding rate arbitrage model on-chain, allowing ordinary users to participate. The main risk lies in the long-term negative funding rates leading to losses.

4. US Treasury Yield RWA Project

Utilize the high interest rate of over 4% on US dollars to generate returns through compliant RWA projects. Representative projects include Ondo's USDY and Usual's USD0. Returns are stable at around 4%, but there are risks of regulatory issues and declining returns.

5. Structured Options Products

Mainly adopts a sell put option strategy to earn option premium income. Suitable for range-bound volatile markets, but there is a risk of missing out and significant declines. New products like OKX's Shark Fin strategy offer principal protection.

6. Tokenization of Earnings

The Pendle protocol splits yield-bearing assets into principal tokens PT and yield tokens YT, offering various strategies such as fixed income and yield speculation. The overlay of multiple incentives makes the total yield considerable, but frequent operations are required.

7. A Basket of Stablecoin Yield Products

Like the Market-Neutral USD pool of Ether.Fi, which combines various stablecoin yield strategies to provide users with a diversified risk-return portfolio.

8. Stablecoin Staking Yield

If the AO network accepts DAI staking to earn AO token rewards. The risk lies in the uncertainty of new project developments.

By understanding the characteristics and risks of different stablecoin yield models, investors can make reasonable allocations based on their own risk preferences and capital levels, while obtaining stable returns and coping with market fluctuations.