Earning Stablecoin: A New Trend in the Crypto Market

Stablecoins are becoming a market consensus. From Stripe's acquisition of Bridge, Huma using stablecoins to replace the role of bank intermediaries, to Circle becoming a new rising star in the crypto market with USDC, the influence of stablecoins is growing increasingly.

Ethena leads the way, MakerDAO rebranded to Sky and is transitioning to yield stablecoins, Pendle and a certain lending platform are quickly shifting towards USDC--PT/YT--USDe, these are recent developments in on-chain stablecoins.

Currently, interest-bearing stablecoin ( YBS ) still belongs to a branch of the stablecoin concept. Projects like USDe and YBS attract users through interest-bearing features, distributing part of the asset earnings to users, and continue to earn asset returns after completing the deposit. This is different from the traditional process of issuing stablecoins to create new assets.

YBS follows the on-chain banking logic of deposit-taking and lending, deconstructing the power of asset issuance. The history of the encryption industry is a history of innovation in asset issuance models, and this time, under the name of stability, it appears to be more gentle.

Taking the f(x) Protocol as an example, it has at least 5 types of stablecoins, including rUSD, fxUSD, $btcUSD, $cvxUSD, and even fETH is referred to as a stablecoin because it maintains price anchoring by capturing part of the volatility of ETH.

Stability comes from volatility, and volatility creates stablecoins.

Sailing from the Old World to the New World

Yield stablecoins and StableFi are both new expressions of stablecoins. Stablecoins originated from Bitcoin as a peer-to-peer electronic cash payment system. However, Bitcoin is not stable, which is not a design issue, but because it is essentially an unanchored currency system.

A certain stablecoin platform first attempted in the Bitcoin ecosystem, then shifted to the exchange valuation field. Fiat stablecoins were thus born, and their mechanism is not complex; it requires users to trust the issuing company and recognize its market trading stability.

DAI issued by MakerDAO uses an over-collateralization mechanism ( CDP ), and has long been the only option for on-chain stablecoin issuance. The 1.5x collateralized assets, while suppressing capital efficiency, provide higher credibility to market participants.

From then on, the history of cryptocurrency from an on-chain perspective is a story about how to reduce the staking rate. A trading platform can amplify asset trading leverage, but there is no good way to leverage asset creation.

Regarding asset creation, UST is a sad chapter, and classic algorithmic stablecoins have since failed. Frax can at most be considered semi-Algorithmic, or it is more appropriate to call it a hybrid mechanism (Hybrid), which has already become a skin for a stablecoin.

Mechanically speaking, interest-generating stablecoins require both an interest-generating mechanism and a stablecoin mechanism. The real distinction lies in the interest income and profit-sharing mechanisms, which depend on the source of the interest-generating assets. The simplest methods are twofold: using on-chain staking assets like stETH and off-chain income-generating assets like U.S. Treasury bonds, which can also be mixed together.

USDe is quite special; it earns interest using stETH while maintaining price stability through hedging methods on a certain trading platform. It also requires compliance through off-chain entities and uses USDC as part of its reserves.

The ideal on-chain native yield stablecoin should only use ETH assets, hedge on a certain trading platform, and distribute profits entirely on-chain. Unfortunately, such a project strictly speaking does not exist.

Currently, there are nearly a hundred projects involving stablecoins in the market, but after excluding non-yielding stablecoin projects, the active mainstream options are basically covered. A complete yield-bearing stablecoin protocol's token economics should include stablecoins and their staked versions, as well as the protocol's main token and its staked version.

Yield stablecoins are the intersection of DeFi, RWA, and stablecoins. The stablecoin products of a certain lending platform and a certain DEX are mainly designed to strengthen their own protocols and will not fully target the market share of USDe or USDS.

The real question is, how much room will the market leave for emerging yield stablecoin protocols beyond USDS and USDe. After screening, about 50 projects are competing for the remaining spots in the yield stablecoin space.

DeFi Lego to YBS Blocks

Reaching the New World successfully does not mean victory; the survival crisis will become more urgent. Based on the underlying assets of the project, core mechanisms, and quantitative data such as TVL, we have selected 12 promising protocols.

These projects mainly compete in the retail market for interest calculation, pricing, and payment scenarios, which are also the most challenging but highest rewarding paths. Sky is backed by government bond yields and the existing market of DAI, combining yield generation and stablecoins, becoming Ethena's strongest competitor.

The YBS protocol continuously combines other protocols, with multi-chain, multi-protocol, and multi-pool as standard. Every organization of YBS, and every yield farmer focusing on YBS, ultimately contributes to Pendle's TVL and revenue.

These projects still face numerous challenges, including the sustainability of yields and the impact of the protocol's main token price volatility on yield stablecoins. Therefore, it is essential to focus on the protocol's ongoing profitability and principal security.

Apart from Sky and Ethena, Resolv, Avalon, Falcon, Level, and Noon Capital may become new big opportunities. For the YBS project, the protocol requires secondary market liquidity for the main token, similar to how Ethena introduced mainstream exchange-affiliated VCs, forming a de facto alliance of interests.

The credibility and capital reserves required for YBS are beyond what a Meme Coin can reach. Always remember, YBS is also a coin, especially the true YBS that does not rely on government bonds or the US dollar, its recognition level is not much different from that of BTC/ETH.