After researching 100 yield-generating stablecoins, we found 5 Promising Cryptos.

Stablecoins are becoming a market consensus.

Stripe’s acquisition of Bridge is just the beginning, Huma’s use of stablecoins to replace banking intermediaries, and Circle’s emergence as an upstart after Coinbase with USDC are all botched parodies of USDT.

Ethena takes the lead, MakerDAO rebrands to Sky and shifts to yield-bearing stablecoins, Pendle, Aave, and others are rapidly converting USDC–PT/YT–USDe. The above is a summary of the recent stories of on-chain stablecoins.

At least for now, YBS (Yield-Bearing Stablecoin) still falls under the concept of stablecoins, and it is difficult for everyone to understand the fundamental differences between USDe and USDT. In my opinion, YBS projects like USDe attract users by offering yields, distributing part of the asset income to users, and after completing the accumulation of deposits, continue to earn asset income.

Previously, the issuance of USDT was a process of creating new assets. It should be noted that the reserves of USDT are managed by the regulator or the project party, and have no relation to the users. Users can only passively accept that USDT represents 1 dollar and expect others to recognize its value.

Image description: stablecoin classification Image source: @zuoyeweb3 YBS follows the on-chain banking’s deposit-lending logic, deconstructing the power of asset issuance. Circle’s creation of USDC requires government-business cooperation and exchange support, but YBS has already shown explosive growth.

Once again, it is reiterated that the history of the cryptocurrency industry is a history of innovation in asset issuance models, only this time under the name of stability, somewhat milder, not as intense as the ERC-20, NFTs (ERC-721), and the PVP of Meme Coins on the chain.

For example, f(x) Protocol has at least 5 stablecoins, V1 and V2 have rUSD and fxUSD respectively, in addition to $btcUSD, $cvxUSD, and even fETH is also known as a stablecoin because the price is maintained by capturing part of the volatility of ETH, and the remaining volatility is absorbed by xToken.

Image description: f(x) Protocol stablecoin More images from: @YBSBarker Stability comes from volatility, and volatility creates stablecoins.

Sailing from the Old World to the New World

Whether it is an interest-earning stablecoin or StableFi, they are all new expressions of stablecoins, so you might as well sort out the origin of stablecoins a little.

Stablecoins originated from Bitcoin, which is a peer-to-peer electronic cash payment system. However, Bitcoin is not stable; this is not a design flaw of Bitcoin. Bitcoin is essentially an unanchored currency system, and its fair price continues to fluctuate around its value, making it unable to stabilize in the short term.

The earliest attempt of USDT was in the Bitcoin ecosystem, and later it shifted to the exchange valuation field. The golden combination of Bitfinex and Tether allowed stablecoins to find their earliest habitat, just like today’s Coinbase and Circle.

Fiat stablecoins were born from this, and their mechanism is not complex; you just need to trust Tether and everyone recognizes the market trading stability of USDT. The first-mover advantage has allowed Tether to create a higher profit margin than BlackRock.

Following closely is DAI issued by MakerDAO, where the over-collateralization mechanism (CDP) has long been the only choice for on-chain stablecoin issuance. A 1.5 times collateralization ratio suppresses capital efficiency but provides higher credibility to market participants.

The history of cryptocurrency, from an on-chain perspective, is a story of how to reduce staking rates, with financial alchemy working in both directions. Hyperliquid can amplify asset trading leverage, but there is no good way to leverage asset creation.

Image description: Mainstream stablecoin image in 2022 Source: stablecoins.wtf Regarding asset creation, UST is a sad chapter; classic algorithmic stablecoins have since faltered. Frax can at most be considered semi-Algorithmic, or more appropriately referred to as a hybrid mechanism, and it has already become a skin suit of USDC.

Mechanically speaking, interest-generating stablecoins require both an interest-generating mechanism and a stablecoin mechanism. Based on the other three, the CDP mechanism of DeFi giants is also acceptable, and Ethena’s Delta neutral mechanism is fine as long as it can ensure stability. Of course, USDD is promised to maintain stability by Sun Ge, as long as everyone recognizes it.

The real distinction lies in the interest generation and profit-sharing mechanisms, which depend on the source of interest-bearing assets. The simplest methods are twofold: using on-chain staking assets like stETH, and off-chain yielding assets like U.S. Treasury bonds, which can also be mixed together.

Ethena’s USDe is quite special as it uses stETH for yield while maintaining price stability through CEX hedging. It also requires compliance through off-chain entities and uses USDC as part of its reserves. As the saying goes, everything can be mixed, regardless of mechanism and assets.

If Ethena only uses ETH assets, hedges on Hyperliquid, and fully distributes profits on-chain, then it is the most ideal on-chain native yield stablecoin.

Unfortunately, such projects do not strictly exist.

Image description: List of interest-generating stablecoin projects Image source: @YBSBarker The above is a list of 91 projects we have compiled. If we add USDT, USDT0, USDC, PYUSD, and USDD, reaching a hundred is not a difficult task.

In fact, according to RootData, there are currently 181 projects involving stablecoins, while DefiLlama has recorded 259. However, after excluding non-yielding stablecoin projects, the mainstream options actively available in the market are basically covered here.

Strictly speaking, USDe is not an interest-bearing stablecoin, sUSDe meets the definition, and a complete interest-bearing stablecoin protocol tokenomics should look like this:

1. 1. Stablecoins and their pledged versions, such as USDS and sUSDS
2. 2. The main protocol tokens and their staked versions, such as ENA and sENA

In addition, the focus on the protocol will better reflect the distinction that “the protocol distributes profits, and stablecoins are the proof of profit distribution.” Referring to the historical innovation in asset issuance, there will not be more than 5 high-potential projects in any track, including public chains, DeFi, L2, wallets, inscriptions, runes, and Meme Coins.

Coincidentally, interest-bearing stablecoins are a very complex intersection, where DeFi, RWA, and stablecoins pull against each other. Similar to Aave’s GHO (ERC-20) and sGHO (ERC-4626), as well as Curve’s crvUSD and scrvUSD, they only serve to strengthen their own protocols and do not fully compete for the market share of USDe or USDS.

So the real question is, how much market space can the market leave for emerging yield stablecoin protocols beyond USDS and USDe.

A preliminary selection of 91 protocols from the list, with the following subjective criteria:

1. 1. Older DeFi protocols that do not focus on YBS business, such as Aave, still have lending as their core business;
2. 2. Inactive, the most subjective standard:

• • Currently not on the mainnet, will continue to update in the future.
• • Follow the Wind Speed Pass project, follow the stablecoin of the DeFi giant in 2022, follow Delta hedging with Ethena in 2023, and the current wind.
• • and have been acquired or have ceased operations

• 3. No financing and no backup, perhaps struggling to persist, but stablecoin projects need reserves. No financing indicates a lack of recognition in the primary market, making it difficult to achieve technological victory or significant community contributions in TVL.

It must be noted here that the USD1 issued by WLFI, similar to the Trump family, is more like USDT and has little relevance to interest-bearing stablecoins, so it will not be included in the discussion.

Image description: Project images source after rough selection: @YBSBarker The above 52 projects are the contestants competing for the remaining positions in the yield stablecoin track. For example, we directly exclude Polkadot’s Hydration; surely no one is still expecting Polkadot to make a comeback.

For example, the YLDS issued by Figure Markets is the opposite of an on-chain interest-bearing stablecoin, but it has obtained legal registration qualifications and is suitable for traditional financial clients with special compliance needs. The detailed exclusion reasons can be found in the Feishu document.

After the preliminary selection, set the dimensions of fundamentals, income generation methods, and APY to examine their details.

• • Fundamentals: Official website, Twitter, CA
• • Earning Method: Strategy and Action, Sources of Income, Distribution of Earnings, Rewards
• • APY Calculation Method

In short, strategy and Action refer to the financial strategy corresponding to YBS, with Action being the concrete operational steps. The source of income comes from the protocol’s revenue, and the distribution method of income is generally through staking stablecoins. However, specific cases require specific analysis, and this will not be elaborated here.

Taking Avalon as an example, its stablecoin is USDa, and its interest-bearing stablecoin is sUSDa. The details of each dimension are as follows:

• • Sources of income: USDa loan interest revenue + USDa Lend business income
• • Strategy: Berachain ecosystem KodiakFi staking USDa/sUSDa group LP

And Avalon is particularly typical, needing to involve Pendle. In the current YBS ecosystem, the combination of Pendle and Aave is the biggest beneficiary, surpassing Curve at its peak. Here I need to dig a pit, to be filled later.

Of course, this naturally involves the assessment and classification of the security and stability of emerging protocols. Sui’s Cetus is a cautionary tale, and the new pit two consecutive times (today Cetus can claim compensation).