Yield Stablecoin: A New Innovation in Asset Issuance

Stablecoins are becoming a market consensus. Recent developments in the stablecoin sector include: certain payment companies acquiring stablecoin projects, some fintech companies using stablecoins to replace traditional banking intermediaries, and companies issuing USDC becoming new key players in the cryptocurrency industry with their stablecoin business. All of these can be seen as imitation and competition against existing mainstream stablecoins.

At the same time, the field of interest-bearing stablecoin ( YBS ) is also rapidly developing. Some decentralized finance giants are turning to the issuance of interest-bearing stablecoins, and multiple projects are launching interest-bearing stablecoin products. Currently, YBS is still regarded as a subclass of stablecoins, and the market's understanding of its fundamental differences from traditional stablecoins is still insufficient. Essentially, YBS attracts users through asset yields, distributing part of the earnings to users, thereby achieving the goal of savings absorption and continued asset yield acquisition.

In contrast, the issuance of traditional stablecoins is a process of creating new assets. Their reserves are managed by regulators or project parties, and users merely passively accept their value. However, YBS follows the logic of on-chain banking for deposit-taking and lending, deconstructing the power of asset issuance. The issuance of traditional stablecoins requires cooperation between the government and businesses, as well as support from exchanges, but the YBS project has shown explosive growth.

The development history of the cryptocurrency industry can be seen as a history of innovation in asset issuance models. This round of innovation, named stablecoin, is relatively mild, unlike the earlier token standards or meme coins which were more intense. It is noteworthy that some protocols issue multiple stablecoin products, using different mechanisms to maintain price stability.

Stability stems from volatility, and volatility creates stablecoins. Yield-bearing stablecoins are a new expression of the stablecoin concept. Looking back at the development history of stablecoins, it can be traced back to Bitcoin's attempt as a peer-to-peer electronic cash payment system. However, Bitcoin's price is highly volatile, making it difficult to serve as a stable medium of exchange.

Early fiat-backed stablecoins like USDT have a relatively simple mechanism, primarily relying on the issuer's credit and market recognition. The subsequent DAI uses an over-collateralization mechanism, which, although reduces capital efficiency, increases credibility. Following this, the development of stablecoins mainly revolves around how to reduce the collateralization rate.

Algorithmic stablecoins were once in the limelight, but suffered heavy losses after the collapse of UST. Currently, hybrid mechanism stablecoins like Frax are heavily reliant on USDC as reserves.

Yield-bearing stablecoins need to have both a yield mechanism and a stability mechanism. Yield-bearing assets can come from on-chain pledged assets, off-chain assets like U.S. Treasuries, or a mix of both. Some projects also employ hedging strategies to maintain coin price stability. An ideal on-chain native yield-bearing stablecoin should use only on-chain assets, conduct hedging and profit-sharing on-chain, but currently, there are no projects that fully meet this standard.

There are nearly a hundred active yield-bearing stablecoin projects in the market. A complete yield-bearing stablecoin protocol typically includes the stablecoin and its staked version, as well as the protocol's main token and its staked version. Considering historical experience, no more than 5 peak projects in any emerging sector will ultimately stand out.

Yield stablecoins are at the intersection of DeFi, physical assets, and stablecoins. Some traditional DeFi giants issue yield stablecoins mainly to strengthen their own ecosystem and will not fully compete with emerging projects that focus on yield stablecoins. Therefore, the key question is how much space the market can provide for emerging yield stablecoin projects.

After screening, there are currently about 50 yield-generating stablecoin projects that are truly worth paying attention to. Evaluating these projects requires examining multiple dimensions such as fundamentals, yield generation methods, and returns. The fundamentals include information from the project's official website, social media, etc.; yield generation methods involve specific strategies, sources of income, and distribution methods; the calculation method of returns is also an important reference indicator.

Yield stablecoin protocols often combine multiple other protocols, similar to early DeFi Lego blocks. Multi-chain, multi-protocol, and multi-pool have become standard configurations. Currently, these projects still face some issues, such as the durability of yields being untested and the price volatility of the main protocol token potentially affecting the stability of the stablecoin. Therefore, paying attention to the ongoing profitability of the protocols is crucial.

Projects that may become new opportunities in the field of interest-generating stablecoins include Resolv, Avalon, Falcon, Level, and Noon Capital. These projects each have their own characteristics and are expected to stand out beyond Sky and Ethena. It is worth noting that the issuance of main tokens for interest-generating stablecoin projects is not a bad thing, but rather aims to obtain liquidity in the secondary market, similar to the way traditional stablecoin projects form alliances with exchanges and other institutions.

Overall, interest-bearing stablecoins are a new innovation in the asset issuance field, requiring a level of credibility and capital reserves that far exceed those of general crypto assets. In the future, interest-bearing stablecoins are expected to become an important form of currency, potentially holding importance comparable to the creation of Bitcoin and Ethereum.