Market Watch: Q1 Yield Guide for Top 8 Stablecoins

#Stablecoins #CryptoMarket #SuperEx

In the promotional article “Guide: Which Type of On-Chain Player Are You?” released yesterday, we mentioned that on-chain users can generally be divided into four categories: airdrop hunters, DeFi players, meme players, and stablecoin players. Among them, users investing in stablecoins mainly adopt long-term or dollar-cost averaging strategies. The projects they engage with also mostly revolve around stablecoins, aiming for stable long-term returns.

Stablecoins are cryptocurrencies pegged to reserve assets such as fiat currencies or gold, designed to maintain price stability through asset collateralization or algorithmic mechanisms. Their features are quite distinct:

• Value Stability: Pegged to assets like the U.S. dollar or gold (typically at a 1:1 ratio) to reduce price volatility. For example, one stablecoin may correspond to one dollar in reserves to ensure its stable value.
• Technical Foundation: Based on blockchain technology, they offer features like fast settlement and decentralization, while maintaining the stability of fiat currency.
• Original Purpose: To address high volatility in the crypto market and act as a bridge between traditional finance and crypto markets.
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Main Types of Stablecoins:

1. Fiat-Collateralized (e.g., USDT, USDC): Issued by centralized institutions and backed by fiat currencies (like USD), offering high transparency but reliant on centralized trust.
2. Crypto-Collateralized (e.g., DAI): Backed by other cryptocurrencies (like Ethereum), maintaining stability through overcollateralization and smart contracts — decentralized but more complex.
3. Algorithmic Stablecoins (e.g., USD0): Not backed by physical collateral, price stability is maintained by algorithmically adjusting supply — higher risk but does not require reserves.
4. Synthetic Asset Stablecoins: These are created by using other crypto assets and algorithmic mechanisms to synthetically mirror real-world assets (typically USD or gold), without necessarily holding the actual reserve assets.
5. RWA-Based Stablecoins Backed by U.S. Treasuries: These stablecoins are issued with Real World Assets (RWA), such as U.S. Treasury Bills, as their underlying collateral. Essentially, they serve as “on-chain dollar funds,” combining stablecoin properties with fixed income attributes.
6. Non-USD Stablecoins: Euro-based stablecoins (like Circle’s EURC, Tether’s EURT) and other fiat-based stablecoins (e.g., BRZ, ZCHF, HKDR) currently have minimal impact on the USD-dominated stablecoin market.

The current methods of earning yield through stablecoins fall into the following major categories. This article will further break down each category of yield strategy:

1. Lending & Borrowing

This is the most traditional way of earning yield with stablecoins. Users deposit USDT, USDC, etc., into decentralized lending protocols such as Aave, Compound, Spark, etc., to earn interest. The protocol automatically adjusts interest rates based on supply and demand.

Advantages: Low operational barrier, good asset liquidity, and controllable risk. Annual percentage yields (APYs) generally range between 2%–5%, occasionally exceeding 6% during high demand periods. However, risks such as liquidation and smart contract vulnerabilities still exist — it’s recommended to choose platforms with high TVL and thorough audits.

2. Yield Farming

Yield Farming involves providing stablecoins into trading pools (e.g., USDT/USDC or USDC/DAI) on DEXs to earn trading fees and platform token rewards. On Uniswap V3, for example, users can provide concentrated liquidity for stablecoin pairs to earn higher fee shares. Curve, optimized for stablecoin pools, offers lower slippage and relatively stable returns.

However, yield farming returns can be impacted by price fluctuations of platform tokens, and some platforms have lock-up periods or depreciation risks of reward tokens.

3. Market-Neutral Arbitrage

Arbitrage strategies include:

• Price arbitrage between stablecoin pairs (e.g., USDT vs. USDC on different exchanges)
• On-chain/off-chain arbitrage (CEX vs. DEX)
• Perpetual futures vs. spot funding rate arbitrage

These strategies are theoretically risk-neutral and controllable, but they require higher technical proficiency and tooling. Some strategies also require frequent rebalancing and incur gas fees — suitable for professionals or quant firms.

4. U.S. Treasury Yield — RWA Projects

Stablecoins such as USDY (Ondo), USDM (Mountain Protocol), and sDAI (Spark) convert on-chain funds into off-chain assets that earn U.S. Treasury yield, and then issue representative stablecoins proportionally.

Advantages:

• Tied to real-world finance, offering considerable yield (annualized 4%–5%)
• High asset security, with increasing transparency
• No trading behavior involved, suitable for long-term holders

However, most of these projects are in permissioned phases (e.g., requiring KYC), and depend on third-party custodians, presenting regulatory and credit risks.

5. Structured Products

Structured yield products usually combine stablecoins with options strategies — e.g., “principal-protected stablecoin + DeFi options strategy + partial risk exposure” — delivering fixed or floating interest to users on a periodic basis. Platforms like Ribbon, Friktion, and Polynomial allow users to deposit USDC into strategy vaults that automatically execute option selling to earn premiums, with potential annualized returns of 5%–12%.

These products carry technical complexity and risk of principal loss, thus are suitable for users familiar with options mechanics.

6. Yield Tokenization

Yield tokenization is an emerging DeFi trend. After depositing stablecoins into a protocol, users receive derivative tokens that represent yield and can be used for additional liquidity or collateral purposes, achieving compound or diversified returns.Examples:

• Aave’s aUSDC
• Compound’s cDAI
• Yearn’s yUSDT

Users earn base interest while also participating in secondary farming, lending, or trading via these tokens — improving capital efficiency. Risks lie in potential “discounting” or “depegging” of the yield tokens from their underlying assets, requiring regular user monitoring.

7. Stablecoin Yield Products

CEXs and DeFi platforms are actively launching structured “stablecoin yield packages,” such as Binance’s Simple Earn, OKX’s DeFi Earn, and Coinbase’s USDC savings product.With a single operation, users can subscribe to products with 3%–8% annualized fixed or floating returns. Platforms typically diversify deposits across multiple protocols, reducing operational complexity. This approach is best for beginners or light participants, but yields depend on platform design and may include restrictions like “lock-up periods” or “early exit penalties.”

8. Stablecoin Staking Yields

Some emerging protocols incentivize users to stake stablecoins in exchange for protocol tokens (e.g., Stargate’s veSTG, Pendle’s fixed yield markets, Curve’s veCRV model). While staking, users earn stable returns and can also participate in protocol governance or mining. This mechanism combines incentives with lock-ups — though returns can be high, flexibility is lower and there’s exposure to native token price risk.

Conclusion

In Q1 2025, the market share of stablecoins continues to expand — not only as a primary medium of on-chain transactions, but increasingly as a core vehicle for “on-chain wealth management.” From traditional lending and liquidity mining to innovative structured products and RWA-based yield models, stablecoins are evolving into interest-bearing instruments, carrying the return expectations of on-chain capital.

Given the global rate-cutting cycle and the clear trend of on-chaining U.S. Treasury assets, we have reason to believe that stablecoins are not just safe-haven tools — they are becoming the new powerhouse of future on-chain asset management.