If you’ve been in crypto for a while, you’ll know about stablecoins; basically cryptocurriences that are ‘pegged' to something that is deemed stable. Most commonly USD, however other fiat currencies and precious metals are also used.
You also might know that you can earn interest on stablecoins at a much greater APY ((Annualized Percentage Yield) than fiat in any traditional bank, and that each yield solution or strategy, be that via DeFi or CeFi, comes with associated risks and problems.
Added to the DeFi and CeFi-specific problems, we all know that any fiat-pegged stablecoins suffer the same devaluation problem as their fiat counterparts: inflation.
Yield-bearing, or interest-bearing, stablecoins offer a potential solution.
Let's dig in…
Why inflation sucks
When inflation occurs, it takes more money to purchase the same items or services. That sucks.
Inflation and its effect is a big problem globally for fiat (government) currencies and anything pegged to them.
Whilst the above shows how inflation has effected the cost of a cup of coffee, most countries calculate inflation based on a basket of common items and services (groceries, utilities etc.) adjusted each year to reflect latest consumer spending.
Inflation is the increase in cost of living, aka the decrease in purchasing power.
E.g. If inflation is 10% over a time period, then something that cost $1 at the start of the period, costs $1.10 at the end. High rates of inflation means the currency has become or is becoming ‘debased’. Often, governments will report inflation as less than it really is.
This short article from the International Monetary Fund is a good place to start learning about the basics of money.
So, now we know what inflation is and why it sucks…
How can we have a real “stable” currency whereby the purchasing power is retained and does not reduce over time?
How can we develop a solution whereby an average stablecoin owner can retain custody of their tokens AND earn yield in a simple manner (ie. without requiring much skill and time)?
We’ll take a look at five, four of which are reasonably similar; backed by baskets of stablecoins and earning interest through crypto borrowing/loans and the most recent; backed primarily by real estate and generates yield via property rental income.
Yield-bearing stablecoin comparison table
A quick comparison of the 5 yield-bearing stablecoins covered in more detail below.
5 Automatic Yield-Bearing Stablecoins
|Launched||2021 Jan||2020 Jul||2022 Jan||2022 May||2022 Aug|
|Backed by||USDC, CoinFlex||Basket of stablecoins||Basket of stablecoins||Basket of stablecoins||Real Estate & DAI|
|Yield source||Lending & borrowing||Lending & borrowing||Lending & borrowing||Lending, Pools, Farms||Rental income|
|Yield frequency||8 hours||Instant||10 days||Daily||Daily|
|Staking not required|
|Current chains||N/A||Polygon & Ethereum||Arbitrum||Polygon, BSC, Avalanche, Optimism||Polygon|
|Market cap (August 2022)||$74.5M||$37.6M||$3.71M||$3.54M||$1.5K (#bless!)|
As you can see, all five stablecoins are fairly new and have low market caps.
Stablecoin landscape overview
First-generation stablecoins like USDT (Tether) and USDC (Circle / USD Coin) served the first basic need by giving us crypto enthusiasts a stable place to move our funds in and out alongside an easy way to make payments pegged to fiat values.
These two currently dominate the market, with USDT being first to market (2014) and still leading by a long shot in terms of market share.
If you visit TheBlock.co, you can play around with the above charts and many others. As you can see, USDT is massive. USDC has made decent ground and in third position, BUSD (Binance's stablecoin) is a popular choice.
These first-generation tokens are primarily collateralised with USD itself or USD-based assets such as bonds and are centralized entities.
None of these ‘big three’ stablecoins pay holders any interest or yield.
A next generation of stablecoins began to emerge that are a mix of decentralized and semi-decentralized, often not fully reliant on a fiat backing and often using innovative algorithms as all or part of the pegging method.
For example DAI (MakerDAO) is over-collateralized using various assets and uses an algorithm to peg. Other innovators include FRAX (Frax), FEI (Fei Protocol), MIM (Magic Internet Money), RSV (Reserve Protocol) and many more…including the recently fallen, fully algorithmic UST (Terra Luna).
Again, these second generation of stablecoins don’t tend to pay interest, although there are some advancements in that area and many strategies if you are game!
There are more than 100 stablecoins on CoinGecko and their total market cap has seen massive growth — even in the 2022 bear phase and crash, when virtually all crypos fell substantially, the stablecoin category still experienced growth…until Terra Luna collapsed!
|#||Coin||Price||Marketcap||Volume (24h)||Supply||Change||Last 24h|
How to earn yield on stablecoins (aka ‘interest’)
First, let's take a quick look at how one would typically generate a yield from their stablecoin holdings.
There are two crudely grouped methods; CeFi which is generally very easy and available on my platforms and DeFi, which is often (but not always!) a lot more advanced.
In terms of centralized finance (CeFi), you can deposit on various platforms and earn interest on stablecoins. Blockfi, Nexo, Crypto.com all pay yields ranging from around 6-10% (the rate has dropped significantly on some platforms, especially after the fall of Celsius).
My personal favorite centralized platform is Freeway, it earns me +40% APY on fiat-simulated USD, EUR or GBP – technically not stablecoins, but they do a similar job. Learn more here.
But as we all know, there are risks with centralized platforms.
As they say; Not your keys, not your crypto!
With DeFi, retain custody of your own assets as they remain in your own wallet. Everything is managed by smart contracts. In an ideal world, the projects themselves would also be fully decentralized but that's not always possible. DeFi is better than CeFi in many ways — just don’t get hacked, be very wary of giving permission to contracts and remember to take great care of those private keys!
In the world of DeFi, there are opportunities to earn yield from virtually every stablecoin through lending platforms, liquidity pools yield farming and other methods.
However, attention, skill and knowledge are required – interest rates change regularly, new platforms arrive with higher short-term APYs and people who do this tend to move their money around a lot.
Earning yield from stablecoins via DeFi activities is generally not very intuitive for the average user, nor ‘passive’.
Thus, there is a barrier to entry for the average person who wants to step away from centralized platforms, earn a decent yield on their stablecoins and beat inflation.
Until now. Or at least; until recently!
Enter yield-bearing stablecoins.
Below is a list of 5 automatic (or semi-automatic!) interest-bearing stablecoins that enable you to earn yield with minimal financial or technical expertise.
Caveat: you will need to know how to use MetaMask.
5 auto yield-bearing stablecoins
The following tokens are listed in order of market cap (as of 24th August 2022), from largest to smallest. We kick off with some centralized drama, followed by three fairly similar DeFi stablecoins and finish with something very different.
|#||Coin||Price||Marketcap||Volume (24h)||Supply||Change||Last 24h|
Note that all tokens are fairly new and still in their infancy…number 5 on the list (USDR) only launched this week and is not yet listed on CoinGecko.
First, a note on 7-day APYs
You'll see in the various screenshots below that these stablecoins tend to display the APY at a default of 7 days. Note that there can be massive day-to-day variations.
See example below from the mSTABLE stats screen.
As you see, there can be huge daily differences. It's always best to go beyond the 7-day figure and look at the charts for a longer-term idea of yield performance.
eg a quick glance at the 7-day figure late-June, may have shown a rate of around 25-30%, whilst late-July the 7-day APY average may only have been 3%.
And, for the avoidance of doubt; the daily figures displayed in these charts and the 7-day averages are what they APY would be IF it was to stay at that rate for a year…ie. the percentage you see not a daily return ;).
Learn more about compound interest and APY here.
Despite a massive de-peg (currently sitting at 33 cents!), FlexUSD is still the ‘top’ in terms of marketcap. So let’s take a look…
FlexUSD was founded in 2020, has completed multiple rounds of VC funding and claims to be “the world’s first interest-earning stablecoin“. It rebases and provides rewards to users every 8 hours, directly to their wallet. It is a centralized entity that claims to have paid 29 million USD in interest to its holders.
However, there has been recent drama and, in June 2022, FlexUSD experienced a dramatic de-peg to $0.23 and currently sits around $0.33!
- Yield amount: Varies (0% in recent months!!!)
- Yield method: On-chain, direct to wallet. No staking required.
- How FlexUSD generates yield: Lending & borrowing – the interest from flexible term loans on leverage (repo market). More info here.
- Collateralization: flexUSD is backed by USDC and assets in CoinFLEX’s repo markets to 100%. According to the whitepaper, these asset reserves are verified and attested to by a US auditing firm (Armanino) every 8 hours.
- DeFi/CeFi: Centralized
- Risks: Leveraged lending and the ability to liquidate quickly is always risky! FlexUSD has experienced a massive de-pegging.
This risk alongside questionable management decisions caused FlexUSD to crash when on 23rd June 2022 they stopped withdrawals from their CoinFlex exchange. They claim Roger Ver aka “Bitcoin Jesus” failed to pay $47 million in margin calls and seek to recover $84 million.
I mean, CoinFlex may have a Certik audit, but what does that really count for if a human is going to give some celebrity a special deal that essentially gives them a free run on the treasury to gamble margin calls without being liquidated.😵💫🤦♀️
Amy Castor had some interesting thoughts straight off the bat. And, as of August 2022 things are still very much up in the air for the future of CoinFlex and FlexUSD, with Bloomberg reporting staff cuts and filing for a restructuring.
Despite all this, and de-pegging to now sit at 33 cents flexUSD still holds the biggest market cap of the 5 yield-bearing stablecoins in this article (written 22nd August 2022). Is there a way forward? Coinflex seems to think so with their rvUSD solution…I’m not so sure, but I really hope they do get it resolved…. and re-assess how they operate!
Also established in 2020 and launched in the same year, mStable is the oldest of these 5 stablecoins. It has gone through multiple versions to get where it is today; an autonomous, decentralised and non-custodial protocol powered by governance token $MTA. I could find little information on funding, other than the logos on their website. It seems initial funding was private – some friends and family in 2019 and a July 2020 tweet about Alameda Research's investment.
As mentioned previously, most stablecoins can be used to earn yield in DeFi, however doing so requires attention, expertise and knowledge. It’s fragmented and yield farmers often move between multiple protocols and several stables, incurring gas and swap fees as they go.
This is where mUSD (and the following two stables, USDs & USD+) comes into play.
mUSD is backed by a basket of ‘tried and tested’ stablecoins and generates yield through participation in various yield-bearing protocols such as AAVE and swap fees. Their algo ensures the collateral never drops below 95%. They have had security audits from ConsenSys, Certik and PeckShield.
- Yield amount: Varies hugely. Around 5% recently.
- Yield method: Deposit to mStable’s ‘Save’ contract.
- How mUSD generates yield: DeFi lending platforms and liquidity / swap fees – mainly depositing on various lending platforms & collecting yield on your behalf.
- Collateralization Info: mUSD is backed by a basket of proven stablecoins; USDC, USDT, DAI and sUSD (Synthetix)
- Stablecoin Nature: Decentralized. Polygon & Ethereum.
- Risks: The usual risks apply in terms of DeFi contracts however being backed by a basket of ‘tried and tested’ stablecoins spreads the overall risk of depegging. mUSD depegged in 2022, taking a short-term dive on 13th July.
Mstable is an interesting stablecoin for sure and, by sticking to only proven stables and platforms such as AAVE and Compound, it has a good chance of growing, albeit that interest rates are affected by the crypto markets. Beyond ‘Save', Mstable has additional features such as liquidity pools and a great user experience, including a rather nice stats page.
Sperax is a Silicon Valley, venture-backed company that is “aggressively working towards decentralization”. Even at just a quick glance, they look slick and they look well-funded. Sperax's token, $USDs, is a 100%-collateralised low market cap stablecoin on Arbitrum (an Ethereum L2), aiming for future interoperability for other protocols / networks.
Sperax USDs holders enjoy auto-yielding rewards, which means they automatically generate yield without the need to stake or claim. The downside is that it currently sits at 10 days. Although, distribution frequency is not really that big a deal IMO for stables. Yield is generated by investing a part of the collateral in ‘tried and tested’ decentralized platforms, like Curve and AAVE.
You can tell a lot of time and effort has been invested in the platform — whilst Sperax was also founded in 2020 (although other sources show a $6.1M seed round in November 2019), Sperax only launched $USDs in January 2022. Their contracts have also been through multiple audits; SlowMist, Certik and PeckShield.
- Yield amount: Varies – around 9% APY
- Yield method: Auto-yield approx every 10 days.
- How USDS generates yield: : Investing in ‘tried & tested’ DeFi lending platforms.
- Collateralization Info: 100% backed by a basket of stablecoins. Currently USDC, FRAX, DAI and VST (Vesta Stable).
- Stablecoin Nature: Decentralized – Arbitrum (more to come)
- Risks: The usual risks apply in terms of DeFi contracts however, similar to mUSD, by being backed by a basket of ‘tried and tested’ stablecoins and only using proven lending protocols, your risk is spread. Apart from a depeg to 97.5 cents on 1st July 2022, USDs has been fairly stable.
Furthermore, there are lots of other opportunities with Sperax including farming, short and long-term staking (at time of writing, for 4 years staking, the current estimate is 71.62% APY!).
Overall, Sperax looks smart. I like what they’re doing and how they are presenting themselves – nice analytics and great UX (user experience) too. My feeling is that USDS has great potential to be a leading yield-bearing stablecoin (if the crypto markets grow and remain in good shape!).
- Website / mint
One of the newer kids on the block, Overnight, also a Silicon Valley VC-backed startup, is only marginally behind Spearx in terms of the market capitalization of their USD+ stablecoin at time of writing. Overnight is completely decentralized and supports significantly more networks than any other in this list.
Having only established themselves in 2021 and raised their first seed round of $850K in December 2021, (Sandeep Naiwal, co-founder of Polygon is one of the investors!) and launched May 2022. It's fair to say that USD+ has shown impressive progress in a short period of time. It is only 3 months since they launched! Head on over to Discord where you'll find a lively community https://discord.gg/overnight-fi.
With Overnight's stablecoin token, USD+, rebase rewards are sent directly to users wallets daily with no staking required. The name, ‘Overnight’ comes from the ’overnight’ automatic-yield interest rate USD+ generates and pays every 24 hours. A smart contract audit has been carried out by Hacken.
- Yield Amount: Varies: around 9% APY
- Yield method: Auto-yield, direct to wallet every day…possibly ‘overnight’ depending on where you live!
- How USD+ generates yield: : Investing in ‘tried & tested’ DeFi lending platforms.
- Collateralization Info: 100% with low-risk, highly liquid DeFi assets such as USDC, USDT, and DAI.
- Stablecoin Nature: Decentralized – Polygon, BNB + beta Avalanche, Optimism.
- Risk: Similar to the aforementioned, usual risks apply in terms of DeFi contracts. And, similar to the others, USD+ is backed by a basket of low-risk stablecoins and only uses proven lending protocols; So, in theory, your risk is spread.
In its short life, USD+ has maintained an admirable peg.
Similar to Sperax, I get good vibes from Overnight, and they are pushing hard. Of all the tokens, I'd say it is my least favourite in terms of design and UX….yet they have been totally smashing it with their progress. There's also loads of additional functionality should you want to roll your sleeves up and take a deeper dive into DeFi eg. liquidity pools that yield crazy APYs.
As with the others mentioned, if the crypto markets do well, yield will be good and USD+ has great potential to grow its market share and become a leading stablecoin – it's already well on it's way! In addition, hey are working aggressively to mitigate bear markets and the negative impact it has on yield with their ‘hedging' platform developments – USD+ is definitely one to watch 🙂
USDR (Real Estate)
A baby in the space, Tangible DAO’s USDR stablecoin soft-launched on 23rd August 2022. At just $1,500 their market cap is a drop in the ocean compared to any of the others.
When it comes to backing and yield, you’ll be glad to know, USDR very different to all the others – the yield comes from rental income and the backing is primarily in the form of real estate. Yes, USDR is a Real-World Asset (RWA) backed, yield-bearing stablecoin that generates its #realyield from rental income (and eventually, property price appreciation).
There have been no VC-style rounds to date as far as I am aware. I believe Tangible that built their treasury through Nidhi DAO in November-December 2021 (an Olympus fork) with further support from Skyvision, Nxgen and Master Ventures. To date, the only audit is by Blaize, on the USDR token. According to Discord, contract audits are nearing completion.
They choose a staking solution, rather than rebase rewards direct to wallet for all USDR holders, so they could take immediate advantage of liquidity in UniSwap v3 which cannot be used by rebase tokens. Many platforms and exchange do not accept rebasing tokens and USDR intend on listing in multiple locations.
- Yield Amount: TBC: around 9% APY
- Yield method: Stake USDR & receive yield every day.
- How USD+ generates yield: Rental property income and eventually property price appreciation.
- Collateralization Info: Over-collateralized by real estate and DAI (+other small assets). Aiming for 130%, currently at 125.1%.
- Stablecoin Nature: Decentralized* – Polygon (future plans for other networks and trad payment solutions)
- Risk: Beyond the typical DeFi contract risks etc, the primary risks are real estate crash and liquidity. This is mitigated by growing the treasury to 130% and the rental income which is ordinarily distributed as yield to stakers but, is subject to being used towards collateral should the treasury drop below 100%.
UPDATE: USDR v2 is being released in October 2022 — no staking will be required to earn yield 🙂
The liquidity issue of real estate is mitigated by using the Tangible Marketplace, an existing Real World Asset (RWA) platform, to purchase TNFT properties at ‘the right price' that are already earning rental yield. The platform also also has an inbuilt ‘instant liquidity engine’. USDR also holds a large portion of the treasury in DAI for instant access. For more details, I have a full article on USDR here.
Note that whilst USDR aims to be as decentralized as possible, the nature of RWA, such as property, means there are limits.
The project is very new, however I see it as having great long-term potential for inflation-beating yield generation. I also really like the fact that the yield (and collateral) has minimal correlation to the crypto markets and is operating in a ‘real world' market that meets real world basic needs and has proven to be profitable for centuries.
- Full article: https://vanlifeincome.net/usdr-stablecoin
So there you have it, one drama queen, three very interesting, but fairly similar, yield-bearing stablecoins and one complete newbie based on real estate. One totally centralized, two totally decentralized, one aiming to become decentralized and one that aims to be as decentralized as possible given the limitations of RWAs.
Each are doing their part in effort to beat inflation and ensure the value of what you hold does not loose purchasing power. Of the four most promising, three are sitting at around the 8-9% APY mark although obviously this is not guaranteed.
- Which will hold their peg most closely?
- Which will maintain 100% or greater backing?
- Which will have the most consistent yield?
I'd encourage you to take a more detailed look at the not only how each is backed and generates yield, but the team, their history and security.
Let’s beat inflation – go check them out and see what you think.
Ping me on Twitter and let me know your favourites & thoughts 🙂