Yield-Bearing Stablecoins: Would They Deliver ?

[Firstfrost]

Following this wave of new stablecoins in the market, it's clear they aren’t just fiat-backed anymore. New projects are experimenting with tokens that earn yield by using arbitrage strategy and staking rewards.

The upside seems great, passive returns while holding a “stable” asset. But regulation is catching up. In the U.S. and EU, rules now limit stablecoin issuers from paying direct interest which could result to these projects changing direction. And of course, Terra/UST is a reminder of how things can collapse when yield promises go too far.

[passwordnow]

New projects are experimenting with tokens that earn yield by using arbitrage strategy and staking rewards.

Usually, it's not the stablecoins themselves are the ones that are making these yields. It's these platforms that are trying to hook up new investors and deposits for them to start yielding. I don't know what they're doing with the staked money on them but AFAIK, it goes straight to the liquidity and as well as being used for loaning services if ever they have that. Well, for the new projects, the yields per annum are usually high because there are not that much users yet but as the number grows, the percentage are also dropping eventually.

[nelson4lov]

Yield bearing stablecoins are here to stay imo. I think it is +EV to hold yield bearing stablecoins  (as long as their protocol is safe and peg is intact) vs holding USDT or at worst, holding US dollars. The banks and government are afraid of yield bearing stablecoins not because those stablecoins might depeg and cause havoc like that UST stablecoin by Luna but because it would mean that most people will move from fiat to just holding this yield bearing stablecoins.

Ethena for instance uses a delta neutral strategy to generate yields for its stablecoins holders which is pretty neat if you ask me

[TastyChillySauce00]

Following this wave of new stablecoins in the market, it's clear they aren’t just fiat-backed anymore. New projects are experimenting with tokens that earn yield by using arbitrage strategy and staking rewards.

The upside seems great, passive returns while holding a “stable” asset. But regulation is catching up. In the U.S. and EU, rules now limit stablecoin issuers from paying direct interest which could result to these projects changing direction. And of course, Terra/UST is a reminder of how things can collapse when yield promises go too far.

Probably gonna provide yield bearing stablecoin outside US market, asian market is huge too and I see so many devs coming from there promising yield bearing stablecoin.

The yield promises usually not that big, it's more or less giving the same interest as providing LP in stablecoin pair so it's not like Terra's UST but as always, anything could happen right?

[markm]

I still prefer the idea of yield being built in to price, so that you have something more truly stable rather than something that is only so-called "stable" as compared to something that forever loses value, such as fiat.

It has seemed that most of what is meant by stability in the so-called stablecoins is more importantly a very small gap between the highest buy offer and the lowest sell offer than the actual price, so it seems reasonable to me that it ought to be feasible to have something that is actually stable, in other words something that goes upward compared to fiat, and still somehow keep a very tight "spread" between the buy side and the sell side.

We have been working on that for many many years now with the Galactic Milieu's "treasuries" system, whereby we can calculate values for assets by dividing the total value of a "treasury" by the number of units issued. Provided one never issues more units and always puts some of the market-making earnings into the "treasury" to increase that calculated value per unit (presumably partly by chosing for the treasury things that do not themselves trend downward in value), it ought in principle be very feasible to grow the value per unit while also maintaining a tight "spread". But of course the spread is where the market-makers make their income so I imagine in practice there is at least some pressure among market-makers to try to have a large "spread" rather than a small one...


-MarkM-

[shinratensei_]

I still prefer the idea of yield being built in to price, so that you have something more truly stable rather than something that is only so-called "stable" as compared to something that forever loses value, such as fiat.

I also find the same thing with yield bearing stablecoin, it just feels like a good hedge against inflation as a built in feature. The APR usually able to keep up with the money printing rate and inflation which can be alternative for other means of hedge against inflation.
The new bill that prevent issuer from giving out yield feels like a wasted potential and can prevent stablecoin from growing to an even higher level of market cap. It could be the next big thing and market cap could even compete with that of bitcoin and blue chip stocks.

Not to mention that it can be used for payment as well with the emergence of stablecoin integration for payment processors, what a potential we've missed.

[DeathAngel]

I don’t like the risk involved with them. It’s great if you can guarantee a high yield from holding an asset but with stablecoin yield it involves you leaving your assets in the control of a third party & that’s where the issues come.
Can you guarantee nothing bad happens, that the third party won’t go rogue or cease to exist & take your stablecoims with them? If the answer is no, then I am not happy doing it for the yield offered.

[X-ray]

I don’t like the risk involved with them. It’s great if you can guarantee a high yield from holding an asset but with stablecoin yield it involves you leaving your assets in the control of a third party & that’s where the issues come.
Can you guarantee nothing bad happens, that the third party won’t go rogue or cease to exist & take your stablecoims with them? If the answer is no, then I am not happy doing it for the yield offered.

Well, that's the risk with custodial service provided by centralized entity. But usually there's audit and there's regulation around it.

If you want the most security for your stablecoin, you should try stablecoin that obey the recent passed bill that regulates stablecoin to be more strict about the asset they are holding and the audit.

If the stablecoin is backed by bond issued by the US government, I don't think there will be a problem at all for the stablecoin to mantain its peg.