Author: JacobZhao

The crypto market has been lackluster recently, and conservative and steady returns have once again become market demand. Therefore, based on my investment experience in recent years and the concentrated research results of the stablecoin field at the end of last year, let’s talk about the ancient but evergreen topic of stablecoin returns.

The current stablecoin categories in the crypto market are mainly the following categories:

• USDT, which is qualified and compliant but has the highest market share: The application scenarios are wide enough (exchange currency trading pairs, crypto industry company salary payments, real international trade and offline payment scenarios), users rely on big hopes and cannot fail and Tether has the ability to provide a guarantee.

• Compliance stablecoin anchored with fiat currency 1:1：USDCThe most chain and application scenario support is the real on-chain USD, while the application scenarios of PayPal USD, BackRock USD, etc. have certain limitations.

• Over-collateralized stablecoin:byMakerDAOofDAIIt is upgraded toSky ProtocolThe latterUSDSMainly; Liquity'sLusdMicro-innovation with a mortgage loan interest rate of 0 and a low pledge rate of 110% has become one of the competitors.

• Synthetic Asset Stable Coins: This cycle is phenomenalEdenofUSEThe most representative. The model of obtaining profits by capital rate arbitrage is also one of the stablecoin income models that will be analyzed later in this article.

• The underlying assets are US Treasury stablecoin: This cycle isUsualofUSD0andOndoofUSDYThe most representative. Usual's **USD0 ++** provides liquidity for US bonds, similar to Lido, which is innovative to ETH Staking.

• Algorithm stablecoin: Terra'sUSTAfter the collapse, the track was basically falsified. Luna lacked real value support token prices fluctuated violently, and the death spiral of plunging sell-off and plummeting.FRAXThere are still some application scenarios for the collective algorithm stablecoins and the excess mortgage model, while the rest of the algorithm stablecoins no longer have market influence.

• Non-USD stablecoins: Euro stablecoins (Circle's EURC, Tether's EURT, etc.) and other fiat currency stablecoins (BRZ, ZCHF, round coin HKDR, etc.) currently have little impact on the stablecoin market dominated by the US dollar. The only way for non-US dollar stablecoins is to pay services under the compliance regulatory framework rather than to be applied to the native crypto community.

Currently, the types of models that obtain profits through stablecoins are mainly the following categories. This article will further analyze each category of profits in detail:

1. Lending & Borrowing：

As the most traditional financial income model, lending comes fromInterest paid by the borrower, the security of the platform or protocol, the probability of default of the borrower and the stability of the income need to be considered. Stablecoin lending products currently on the market:

• Cefi PlatformWith the top exchange (Binance, Coinbase, OKX, Bybit) Mainly current financial products

• Head Defi ProtocolbyGhost, Sky Protocol(MakerDAO upgraded brand),Morpho BlueMainly so on.

The platform security and top Defi protocols of top exchanges that have experienced the test of cycles are relatively high. During the rising market period, U current returns can easily soar to more than 20%, due to the strong demand for lending, but the general returns during the market period are low and maintained at 2%-4%. Therefore, the current lending rate (Flexible Interest) is also a very intuitive market activity indicator. Fixed Interest lending has earned more than current returns due to liquidity sacrifice, but it cannot capture the surge in current returns during market active periods.

In addition, there are some micro-innovations in the overall stablecoin lending market, including:

• Fixed interest rate lending Defi agreement: This cycle is very representativePendleThe agreement begins with fixed interest rate lending and is formed in earnings tokenization, which will be introduced in detail later in this article;Notional Finance、Element FinanceAlthough the early fixed interest rate Defi projects have not been successfully launched, their design concepts are worth referring to.

• Introducing the ** interest rate stratification mechanism in lending (Rate Tranching)andSubordination** mechanism;

• Provide the Defi protocol that is Leveraged Lending;

• ForwardInstitutional ClientsDefi lending agreements, e.g.Maple FinanceofSyrupThe income comes from institutional lending.

• RWAPut the benefits of real-world lending business on the chain, e.g.Huma financeOn the chainSupply Chain Financeproduct.

In short, lending business is the most traditional financial income model, and the largest amount of funds will continue to be the most important stablecoin income model.

2. Yield Farming Income：

byCurveFor the representation, its income comes fromThe handling fee and token rewards assigned to LP by AMM transactions. As the holy grail of the stablecoin DEX platform, Curve has become a stablecoin supported in Curve Pools and has become an important indicator to measure the adoption of new stablecoins in the industry. The advantage of Curve mining isExtremely safeBut the disadvantage isLow returns (0-2%), if non-large and long-term funds participate in Curve's liquidity mining, the profit may not even cover the transaction Gas Fee.

Uniswap's stablecoin pool trading pairs face the same problem. Uniswap's non-stablecoin trading pairs have the possibility of liquidity mining losses, while other stablecoin pool trading pairs with smaller scale DEXs still have Rug Pull concerns even if the returns are high, which do not conform to the principle of prudent and stable financial management of stablecoin. We can see that the Defi stablecoin pool is still mainly based on the lending model, and Curve's most classic 3Pool (DAI USDT USDC) is only in the top 20 TVL.

3. Market neutral arbitrage returns:

Market-neutral arbitrage strategies have been widely used in professional trading institutions for a long time. By holding long and short positions at the same time, the net market exposure of the investment portfolio is close to zero. The main ones in Crypto are:

• Funding Rate Arbitrage: Perpetual Futures has no expiration date, and its price is consistent with the spot price through the Funding Rate mechanism. Funding rates need to be paid regularly to shorten the short-term price difference between spot and perpetual contracts.

  • When the price of a perpetual contract is higher than the spot price (premium), long pay shorts and the capital fee rate is positive.

  • When the price of a perpetual contract is lower than the spot price (discount), the short pays the long and the capital fee rate is negative.

  • Historical retracement data,The probability of a positive capital rate is greater than the probability of a negative capital rate for a long time. Therefore, the source of income is mainly spot buying in positive capital rate scenarios, short selling of perpetual contracts, and long-paid fees.

• Spot and futures arbitrage (Cash-and-Carry Arbitrage): Futures and Spot arbitrage takes advantage of the price difference between the spot market (Spot) and the maturity futures market (Futures) to lock in profits by hedging positions. The core concept is **"Basis"**, that is, the difference between the futures price and the spot price. Usually operates in a premium (Contango, futures price is higher than spot) or discount (Backwardation, futures price is lower than spot) market.Futures and Spot ArbitrageSuitable for investors with large amounts of funds, can accept lock-up periods and are optimistic about the convergence of the basis, and is commonly found in traders with traditional financial thinking.

• Cross-exchange brick arbitrage: Using price differences between different exchanges to build neutral positions is the early mainstream arbitrage method in the Crypto industry. However, the price difference between mainstream trading pairs on different exchanges is already extremely low, and they need to rely on automated brick-moving scripts and are more suitable for high-volatility markets and small-cap currencies. The threshold for retail investors to participate is high, so you can refer to it.Hummingbot Platform。

• In addition, there isTriangular arbitrage, cross-chain arbitrage, cross-pool arbitrageThis article will not provide additional extensions to other arbitrage models.

The market-neutral arbitrage strategy is extremely professional, and most of the audience is limited to professional investors. And the emergence of Ethena in this cycle willFunding Rate Arbitrage"This mature model is moved to the chain, and ordinary retail users can participate.

Users areEthena AgreementDeposit stETH will Mint receive the equivalent USDe token, and at the same time, open an equivalent short order hedge on the centralized exchange to earn positive capital rates, according to historical statisticsMore than 80% of the time is the positive funding rateIn the negative capital rate scenario, Ethena will passReserveMake up for losses; Ethena Agreement **65%The above income hedging capital rates also include some Ethereum staking, on-chain or exchange lending income.(35%)As supplementary income; in addition, user assets are entrusted to third-party custodian institutionsOES (Off Exchange Settlement)** and regularly issue audit reports, effectively isolating the risks of the exchange platform.

Thinking about Ethena's risk, excluding exchangesPlatform and custodial agency accidents、Smart contract security issuesorAnchor asset decouplingThe uncontrollable factors of the project party are more important and the core point is “Losses in the long-term negative capital rate scenario and the funds reserved for the agreement cannot be covered", Based on the historical data retracement, we can understand that the probability is low, and even if it occurs, it means that the "fund rate arbitrage" trading strategy that is generally applicable in the industry has failed. Therefore, under the premise that the team does not do evil, the Ethena protocol will not have the death spiral pattern of the Terra algorithm stablecoin, but what is possible will be caused byThe high yield of token subsidies gradually declines and returns to normal arbitrage returnsscope.

At the same time, we have to admit that Ethena did the mostData transparency, the official website can clearly query historical returns, capital rates, positions on different exchanges and monthly custodial audit reports, which is better than other capital rate arbitrage products on the market.

Apart from Ethena's "fund rate arbitrage" model,Pionex ExchangeThere is also "Term arbitrage"Model of stablecoin financial management products. Unfortunately, apart from Ethena, there are not many market neutral arbitrage products on the market that retail customers can participate in at a low threshold.

4. US Treasury Bills

The Fed's interest rate hike cycle from 2022 to 2023 pushes the US dollar interest rate to more than 5%. Even though it has turned to gradual interest rate cuts,US dollar interest rates of more than 4% are still rare in the traditional financial industryTake into account both high security and high returns. RWA business has high compliance requirements and heavy operation model. US bonds, as a standardized target of high transaction volume, are among the few RWA products with business logic.

U.S. debt as the underlying assetOndo,ThatUSDYFor non-US general retail customers,EagleAll revenues for qualified customers of the United States are 4.25%. They are the number one in RWA track in multi-chain support and ecological applications, but compared with regulatory compliance levelFranklin TempletonLaunchedFOBXXandBlackRockofBiddledThere are slight shortcomings; and the emergence of the new force in this cycleUsualAgreement, in a basket of US debt as the underlying assetsUSD0Above, liquidity tokens have been addedUSD0++, similar to Lido's pledge to Ethereum, provides liquidity for 4-year locked US bonds and can participate in stablecoin liquidity mining or lending pools to obtain additional benefits.

It should be noted that most US Treasury RWA projects have stable returnsAbout 4%, and the higher returns of the Usual stablecoin pool are mainly due toUsual token subsidies, Pills (Point) incentives, liquidity mining and other speculative additional returns are not sustainable. As the most complete US bond RWA project with the Defi ecosystem, it will still face the risk of slow decline in returns but not storm in the future.

Although the redemption mechanism adjustment of USD0++ in early 2025 has been caused byPrice decoupling and sell-off eventsThe root cause lies in the misalignment of its bond attributes and market expectations, which is a misalignment of its bond attributes and market expectations, but its liquidity design mechanism is still worthy of reference for other US bond RWA projects as an innovation in the industry.

5. Option structured product (Structured Product)

Currently popular in most centralized exchangesStructured ProductsandDual Currency Strategy, originated from options tradingSell ​​options to earn premiums"ofSell PutorSell ​​Call Strategy. The U-standard stablecoins are mainlySell ​​Put Strategy, the income comes from the payment of the option buyerOptions, i.e. earn stable USDT option bonus or buy BTC or ETH at a lower target price.

In practical practice, the option selling strategy is more suitable forRange fluctuation, the target price of Sell Put is the lower limit of the oscillation range, and the target price of Sell Call is the upper limit of the oscillation range;One-sided rising market, it is more appropriate to choose Buy Call if the option bonus has limited returns;Unilateral decline, Sell Put is likely to be a state of continuous loss after buying halfway up the mountain. For newbies who sell options, they are easily trappedPursuing the short-term "high option bonus" trapIgnore the sharp decline in currency pricesRisk exposure, but setting the target price too low, the option premium yield lacks sufficient attractiveness. Combined with the author's years of options trading, Sell Put strategy mainly sets a lower buying target price operation when the market is in decline and panic is spreading to earn high option bonuses, while the yield on current lending on the exchange during the market is more considerable.

As for the recent popular exchanges such as OKXShark Fin Principal Protection Strategy,useBear Call Spread Strategy(Sell Call charges option bonus + higher exercise price Buy Call limits the increase) +Bull Put Spread(Sell Put charges option bonus + lower exercise price Buy Put limits the decline), allowing the entire option combination to earn option bonus returns within the range, and buy and sell options outside the range to compete with each other without additional returns. It is a suitable U-level financial management plan for users who focus on the safety of principal but do not pursue the maximization of option bonus or currency standard returns.

The maturity of on-chain options needs to be developed.Ribbon FinanceThe last cycle has become the most top option vault agreement.Open 和 lyra financeThe top on-chain options trading platforms can also manually trade option funds strategies, but the current situation is no longer in glory.

6. Yield Tokenization

This cycle is very representativePendle protocol, a fixed-rate lending that began in 2020 and became income tokenization in 2024. By splitting income assets into different components, users can lock in fixed income, speculate on future returns or hedge income risks.

• Standardized yield tokens SY(standardized yield tokens) It can be split into main token PT and income token YT

• PT（Principal Token）: represents the principal part of the underlying assets. The underlying assets can be redeemed at 1:1 when they expire.

• YT（Yield Token）: Represents the future income part, decreasing over time, and the value returns to zero after maturity.

Pendle's trading strategies are mainly:

• Fixed income: Holding PT maturity can obtain fixed income, suitable for risk aversion.

• Earnings Speculation: Buy YT Bets for future returns, suitable for risk-loving people.

• Hedging risks: Sell YT to lock in current returns and avoid market decline risks.

• Liquidity provision: Users can deposit PT and YT into liquidity pools to earn transaction fees and PENDLE rewards.

The stablecoin pool it currently promotes is also superimposed in addition to the native returns of underlying assets.YT speculative returns, LP returns, Pendle token incentives, Points and other incentive measuresMake its overall yield considerable. One of the shortcomings is that Pendle's high-yield pool has a relatively short-term average and short term, and it cannot be operated once and for all at once like staking or liquidity mining or lending pools.Repeated on-chain operations are required to replace the revenue pool。

7. A basket of stablecoin income products:

As the leading protocol of Liquid Restaking, Ether.Fi actively embraces the transformation of product after the Restaking track enters a saturated downward trend, launches many revenue products in BTC, ETH and stablecoins, continuing to maintain its leading position in the entire Defi industry.

And in itStablecoin Market-Neutral USD PoolAmong them, it provides users with a basket of stablecoin income products such as ** lending interest (Syrup, Morpho, Aave), liquidity mining (Curve), capital rate arbitrage (Ethena), income tokenization (Pendle)** in the form of active management funds. For users who pursue stable chain returns, insufficient capital volume and are unwilling to operate frequently, it is a way to take into account high returns and diversify risks.

8. Stablecoin Staking Pledge Income:

Stablecoin assets do not have staking attributes for POS public chains such as ETH, but the Arweave team launched it.AO NetworkOn-chain stakes of stETH and DAI are accepted on-chain on the token Fair Launch release model, andDAI's pledge has the highest AO income fund efficiency. We can classify this stablecoin pledge model as an alternative stablecoin income model, that is, earn additional AO token rewards on the premise of ensuring the security of DAI assets, and its core risks lie in the development of the AO network and the uncertainty of token prices.

To sum up, we summarize the mainstream stablecoin income model in the current crypto market as shown in the above table. Stablecoin assets are the most familiar but easiest market for crypto market practitioners. Only by understanding the source of income of stablecoins and then allocating them reasonably can we more calmly deal with the uncertain risks of the crypto market based on the stable financial cornerstone.