Author: Blueberry & Bloom Protocols, Translated by: Shanoubao, LianGuai
Stablecoins are a unique type of cryptocurrency that has become a key component of the digital asset ecosystem, bridging the gap between the traditional financial world and decentralized finance (DeFi) innovation. These digital assets are designed to minimize price volatility by being pegged to asset reserves, typically fiat currencies like the US dollar or stable assets like gold. This stability makes them an attractive choice for investors and traders who are looking to avoid the extreme price fluctuations associated with cryptocurrencies like Bitcoin and Ethereum.
Stablecoins have found their niche in the DeFi space, serving as a reliable medium of exchange, store of value, and unit of account. They have become the backbone of many DeFi applications, supporting activities such as lending and liquidity mining. However, recently these stablecoins have been offering relatively low yields, especially since the Terra incident, with yields generally hovering below 3-5%. This article aims to provide a comprehensive overview of the current state of stablecoin yields, their sources, and future opportunities.
Current State of Stablecoin Yields
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After the Terra incident, the yields in the entire stablecoin space have generally been low, well below the 3-5% range. This trend is evident in top-tier money markets, including AAVE, Compound, Dai Savings Rate (DSR), SushiSwap, DAI/USDC Uniswap liquidity pool, and Curve 3crv pool.
Data from leading DeFi TVL aggregator DeFiLlama provides a snapshot of the current rates on each platform. For example, Compound has a total locked value (TVL) of $142.11 million with an annual percentage yield (APY) of 2.90%. This yield is divided into a base APY of 2.10% and a bonus APY of 0.80%. Similarly, AAVE V2 has a TVL of $107 million with an APY of 2.59%, while Morpho Aave has a TVL of $72.66 million with an APY of 2.96%. The DAI savings rate offers the closest thing to a high-yield savings account, currently at 3.49%.
However, it’s not all gloom and doom. Some platforms offer higher yields. For example, Yearn Finance has a TVL of $107.57 million with an impressive APY of 5.45% (though you have to bear significant smart contract risks). Similarly, Conic Finance, with a TVL of $34.58 million, offers an APY of 11.61%, with a base APY of 0.62% and a bonus APY of 10.99% (note that some Conic mining pools recently experienced exploit attacks, further highlighting the risks associated with the higher yield options currently available in DeFi).
These numbers highlight the current low-yield environment in the stablecoin space. However, they also emphasize the diversity and potential opportunities of the market, depending on the level of smart contract risk that investors are willing to take. Different platforms offer different yields, and savvy investors can take advantage of these differences to maximize returns.
It is worth noting that these yields are not static. They may fluctuate based on various factors, including market conditions, user demand, and changes in underlying protocols. Therefore, it is crucial for investors to stay informed and track the latest developments in stablecoin yield rates.
In the next section, we will delve deeper into the sources of these yields and explore how they contribute to the overall yield landscape in the DeFi space.
Uncovering the Sources of Stablecoin Yields
In the DeFi space, stablecoin yields primarily come from two key sources: lending and the liquidity provision of automated market makers (AMMs) such as Uniswap. However, a new category of yield source called Real-World Assets (RWA) has recently emerged, reshaping the yield landscape.
Lending platforms like AAVE and Compound have long been traditional preferred sources of stablecoin yields. These platforms allow users to earn interest by lending stablecoins to other users, who pay interest on the borrowed funds. Interest rates are determined dynamically by supply and demand, with an increase in borrowing demand leading to higher lending rates. Currently, lending yields hover around 3%.
On the other hand, AMMs like Uniswap provide another avenue for earning yields. In AMMs, users can provide liquidity for trading pairs and earn fees from the transactions that occur in their liquidity pools. AMM yields typically range around 2%, but may fluctuate based on trading volume and liquidity pool size.
RWA represents an exciting development in the DeFi space. RWA is the tokenized version of real-world assets, such as on-chain real estate or company stocks. They provide stablecoin holders with a unique opportunity to earn income from off-chain assets. Currently, RWA yields are estimated to be around 5-7%, making it an attractive option for stablecoin holders seeking returns.
However, it is important to note that each yield source comes with its own risks and considerations. For example, lending and AMM yields are influenced by smart contract risks and potential impermanent losses, while RWA yields depend on the performance of underlying real-world assets. Since the income is generated off-chain, RWA on-chain yields generally carry less smart contract risk but may introduce other risks. Overall, it appears that risk-weighted assets are not fully utilized when comparing risks with the offered returns in the current situation.
In the next section, we will delve deeper into the RWA opportunities in DeFi and discuss some key participants in this field.
Exploring Real-World Asset (RWA) Opportunities in DeFi
As we transition from traditional sources of income, it is worth exploring the emerging world of Real-World Assets (RWA) in DeFi. RWAs are tokenized versions of real-world assets, such as on-chain real estate or company stocks. They provide stablecoin holders with unique opportunities to earn yields from off-chain assets.
Key participants in the T-Bills space include Ondo Finance, MatrixDock, RealT Tokens, Tangible, and Maple RWA. These platforms allow users to invest in tokenized versions of traditional financial instruments and earn stablecoin yields in the process.
Ondo Finance has a total locked value (TVL) of $160.31 million, which has grown by 7.10% in the past week, indicating a growing interest in its products. MatrixDock has a TVL of $99.15 million, which has also seen a slight growth of 0.38% during the same period. RealT Tokens and Tangible have TVLs of $82.35 million and $70.53 million respectively, and both have experienced positive growth, with Tangible assets seeing a significant increase of 12.71% in the past week.
These platforms offer new avenues for stablecoin holders to earn yields. However, an important limitation is that all of these platforms require Know Your Customer (KYC) procedures. This requirement introduces entry barriers that limit the accessibility of these platforms, which contrasts with the inclusive nature of DeFi that aims to promote financial inclusivity.
The KYC requirement also makes these platforms incompatible with the decentralized nature of DeFi. This incompatibility raises important questions about the future of DeFi and the integration of real-world assets. How can DeFi platforms balance regulatory compliance requirements with the desire for decentralization and financial inclusivity? How can they ensure that the advantages of DeFi, such as accessibility and financial inclusivity, are not compromised?
These are some of the challenges that the DeFi community needs to address as they continue to explore the potential of RWAs. Despite these challenges, the emergence of RWAs represents exciting developments in the DeFi space, providing new opportunities for generating income and potentially bridging the gap between the traditional financial world and the DeFi world.
Introducing Yield-Bearing Yields (TBY)
Composable Corp’s new product, Bloom, offers the first opportunity in the market to earn yields close to US Treasury bond yields (approximately 5%), but with fully compatible non-KYC products, introducing true composability. TBY yields typically hover around 5%, which is attractive in the current low-yield environment. This yield can be “stacked” with other DeFi protocols, and we will provide more details on this soon. Stay tuned for our upcoming “Bloom Introduction” blog post, where we have much more to say about Bloom.
The Dawn of a New Era in Stablecoin Innovation
As we explore the complex world of DeFi, it becomes increasingly clear that we are standing on the brink of a new era in stablecoin innovation. The emergence of new sources of income such as Real-World Assets (RWA) and Tokenized Bond Yields (TBY), coupled with the potential for yield stacking, has transformed the stablecoin landscape into a vibrant landscape, providing opportunities for experienced investors and newcomers alike.
While the current low-yield environment presents a range of challenges, it has also ignited sparks of innovation and experimentation in the quest for higher returns. The DeFi community has risen to the challenge, developing groundbreaking protocols, platforms, and financial tools that redefine the boundaries of stablecoin yields.
Looking ahead, the DeFi landscape will continue to evolve and expand. It is an exciting prospect to consider how stablecoin yields will adapt and innovate to navigate this dynamic environment. Will we witness the emergence of more innovative sources of income? How will the intricate dance between traditional financial instruments and DeFi continue to unfold? How can a balance be struck between regulatory compliance and decentralization and financial inclusion?
We believe that TBY will play a crucial role. Imagine the future of income-stablecoins supported by TBY, which can then be paired with AMMs to earn transaction fees and rewards, ushering in a new era of sustainable high-yield throughout the stablecoin space.
One thing is certain: as DeFi innovation continues its relentless pace, the future of stablecoin yields is not only hopeful but also exciting. We are not merely observers of this evolution; we are active participants in this thrilling moment of stablecoin innovation. The future is bright, and it is happening.