After studying 100 interest-bearing stablecoins, we found 5 potential coins

Stablecoins are becoming a market consensus.

Stripe's acquisition of Bridge is just the beginning. Huma uses stablecoins to replace the intermediary status of banks. Circle has become a new upstart in the cryptocurrency circle after Coinbase with USDC. All of the above are poor imitations of USDT.

Ethena is a latecomer, MakerDAO changed its name to Sky and switched to interest-bearing stablecoins. Pendle, Aave, etc. are all rapidly USDC--PT/YT--USDe. The above is a summary of the recent story of stablecoins on the chain.

At least for now, YBS (Yield-Bearing Stablecoin) is still subordinate to the concept of stablecoin. It is difficult for everyone to understand the fundamental difference between USDe and USDT. In my opinion, YBS projects such as USDe attract users by generating interest, and continue to earn asset income after completing the absorption of deposits by distributing part of the asset income to users.

Before, USDT issuance was a process of creating new assets. It should be noted that the reserve of USDT is the responsibility of the regulator or the project party, and has nothing to do with the user. The user can only passively accept that USDT is a representative of 1 US dollar and expect others to recognize its value.

YBS follows the on-chain bank's deposit-taking and lending logic and deconstructs the power of asset issuance. Circle's creation of USDC requires government-business cooperation and exchange support, but YBS has already shown a blowout trend.

To reiterate,the history of the crypto industry is the history of innovation in asset issuance models, but this time it is slightly milder in the name of stability, not as intense as the PVP on ERC-20, NFT (ERC-721) and Meme Coin chains.

For example, f(x) Protocol has at least 5 stablecoins, rUSD and fxUSD in V1 and V2 respectively, in addition to $btcUSD, $cvxUSD, and even fETH is also called a stablecoin, because it maintains price anchoring by capturing part of ETH's volatility, and the remaining volatility is absorbed by xToken.

Stability comes from volatility, and volatility creates stablecoins.

From the Old World to the New World

Both interest-bearing stablecoins and StableFi are new ways of expressing stablecoins. Let’s take a look at the origins of stablecoins.

Stablecoins originated from Bitcoin, a peer-to-peer electronic cash payment system, but Bitcoin is not stable. This is not a problem with Bitcoin’s design. Bitcoin is essentially an unanchored currency system, and its fair price still fluctuates around value and cannot be stabilized in the short term.

The earliest attempt at USDT was in the Bitcoin ecosystem, and then it moved to the exchange pricing field. The golden combination of Bitfinix and Tether allowed stablecoins to find their earliest home, just like Coinbase and Circle today.

Fiat stablecoins were born. Their mechanism is not complicated. You only need to trust Tether, and everyone recognizes the market trading stability of USDT. The first-mover advantage allows Tether to create a higher profit margin than BlackRock.

Followed closely by DAI issued by MakerDAO, the overcollateralization mechanism (CDP) has long been the only option for the issuance of stablecoins on the chain. The 1.5 times collateral assets suppress capital efficiency, but give market players higher credibility.

The subsequent history of cryptocurrency, from the perspective of the chain, is a story of how to reduce the pledge rate. Financial alchemy exerts its strength in both directions. Hyperliquid can amplify the leverage of asset transactions, but there is no good way to leverage asset creation.

Regarding asset creation, UST is a sad chapter. The classic algorithmic stablecoin has since failed. Frax can be regarded as semi-Algorithmic at most, or it is more appropriate to call it a hybrid mechanism (Hybrid). It is already a skin case of USDC.

From a mechanism perspective, interest-bearing stablecoins require interest-bearing mechanisms and stablecoin mechanisms. Based on the other three, the CDP mechanism of DeFi giants is also OK, and Ethena's Delta neutral mechanism is also OK, as long as stability can be guaranteed. Of course, USDD is promised by Sun Ge to remain stable, as long as everyone agrees.

The real difference lies in the interest-bearing and profit-sharing mechanisms, which depend on the source of interest-bearing assets. There are two simplest ways: use pledged assets such as stETH on the chain, and use self-yielding assets such as US bonds off the chain, and both can be mixed.

Ethena's USDe is quite special. While using stETH to generate interest, it uses CEX hedging to keep the currency price stable, and needs to comply with off-chain entities. It also uses USDC as part of the reserve. Again, everything can be mixed, regardless of mechanism and asset.

If Ethena only uses ETH assets, hedges in Hyperliquid, and distributes profits entirely on the chain, then it is the most ideal on-chain native interest-bearing stablecoin.

Unfortunately, such a project does not strictly exist.

The above are the 91 projects we sorted out. If we add USDT, USDT0, USDC, PYUSD and USDD, it is not difficult to get a hundred.

In fact, according to RootData data, there are currently 181 projects involving stablecoins, and DefiLlama has included 259. However, after excluding non-interest-bearing stablecoin projects, the mainstream options active in the market are basically covered here.

Sort by the first letters of the protocols, focusing more on protocols rather than stablecoins. Strictly speaking, USDe is not an interest-bearing stablecoin, only sUSDe meets the definition. The token economics of a complete interest-bearing stablecoin protocol should look like this:

1. Stablecoins and their pledged versions, such as USDS and sUSDS

2. Protocol main tokens and their pledged versions, such as ENA and sENA

In addition, paying attention to protocols will better reflect the distinction between "

It just so happens that interest-bearing stablecoins are a very complex intersection. DeFi, RWA and stablecoins pull each other. Similar to Aave's GHO (ERC-20) and sGHO (ERC-4626), Curve's crvUSD and scrvUSD only play the role of strengthening their own protocols, and will not do their best to block the market share of USDe or USDS.

So the real question is, in addition to USDS and USDe, how much market space can the market leave for emerging interest-bearing stablecoin protocols.

A rough selection of the 91 protocols in the list, the subjective criteria are as follows:

1. Old DeFi protocols that do not focus on YBS business, such as Aave, the core is still lending business;

2. Inactive, the most subjective standard:

• Not on the mainnet yet, will continue to update later

• Follow the trend of fast pass projects, do stablecoins with DeFi giants in 2022, do Delta hedging with Ethena in 2023, and the current wind

• As well as being acquired or having ceased operations

3. No financing and no backup. Maybe they are struggling to persevere, but stablecoin projects require reserves. No financing means that they cannot be recognized by the primary market, and it is difficult to win with technology or contribute large amounts of TVL to the community

It must be explained here that USD1 issued by WLFI, which is similar to the Trump family, is more like USDT and has little to do with interest-bearing stablecoins, so it is not included in the discussion.

The above 52 projects are the competitors for the remaining positions in the interest-bearing stablecoin track. For example, we directly exclude Polkadot's Hydration. No one will expect Polkadot to be resurrected.

For another example, YLDS issued by Figure Markets is the opposite of the on-chain interest-bearing stablecoin, but it has obtained legal registration qualifications and is suitable for traditional financial customers with special compliance needs. For detailed reasons for exclusion, you can view it in the Feishu document.

After rough selection, set the three dimensions of fundamentals, interest-bearing method and APY to examine its details

• Fundamentals: official website, Twitter, CA

• Interest-bearing method: strategy and action, source of income, income distribution method, rewards

• APY calculation method

Small note: Strategy and Action refer to the financial management strategy corresponding to YBS, Action is the concrete operation steps, the source of income is where the protocol income comes from, and the income distribution method is generally issued through staking stablecoins, but specific cases are analyzed in detail, so I won’t go into details here.

Take Avalon as an example, its stablecoin is USDa, and the interest-bearing stablecoin is sUSDa. The details of its various dimensions are as follows:

• • Source of income: USDa borrowing interest rate income + USDa Lend business income

• • Strategy: Berachain ecosystem KodiakFi pledges USDa/sUSDa to form LP

And Avalon is particularly typical and requires the involvement of Pendle. In the current YBS ecosystem, the combination of Pendle and Aave is the biggest beneficiary, exceeding Curve at its peak. We need to dig a hole here and leave it to be filled in the future.

Of course, this naturally involves the assessment and classification of the security and stability of emerging protocols. Sui's Cetus is a lesson learned from the past, and the second new pit (can Cetus receive compensation today?).

DeFi Lego to YBS Building Blocks

Successfully reaching the new world does not mean victory, and the survival crisis will be more urgent.

There are still too many, we try to start from the end, and select to reduce the amount. Referring to the data of YBSBarker and the on-chain data of each protocol, we select the following 12 protocols according to the underlying assets, core mechanisms, and quantitative data such as TVL of the project.

Please note that this is only an analysis of the current market situation, and does not mean that these projects will win easily. In addition to the DeFi giants and institutional adoption, these 12 projects mainly compete in the interest calculation, pricing and payment scenarios of the retail market, which is also the most difficult and profitable track.

Perhaps what Ethena envies most is Sky, which, backed by the yield of government bonds and the existing market of DAI, combined with interest-bearing and stablecoins, has transformed itself into Ethena's strongest competitor.

Looking at the remaining 12 contestants, it can only be said that interest-bearing is indeed a means of acquiring customers.

Similar to the early DeFi Lego blocks, the YBS protocol is constantly combining other protocols. Multi-chain, multi-protocol and multi-pool are standard. Every YBS organization and every wool party that focuses on YBS are all common, and ultimately contribute TVL and revenue to Pendle.

Remember the leverage of asset creation mentioned above? In the YBS field, it can be approximately equal to Pendle, not Ethena or other YBS, working hard to make wedding clothes for Pendle.

The problems of these projects are still big. Considering that YBS is in its early stages, there is nothing unacceptable. There is only one thing, the sustainability of the income of each protocol is still questionable. In order to share profits with users, Sky distributed $5 million in income to USDS holders, resulting in basically no profit for the protocol, which is a loss-making business.

In addition, most YBS protocols will issue the main token of the protocol, such as ENA, or Resolv, which has just been listed on TGE. Their own prices are supported by the protocol income and profit-sharing ability. Once the currency price goes down, it will reversely drag down the interest-bearing stablecoin issued by the protocol.

In other words,the scale of interest-bearing stablecoins expands, and the main token of the protocol may not rise, because the net profit of the protocol may not be high. On the contrary, the price of the main token of the protocol falls, and the risk aversion sentiment will lead to the withdrawal of liquidity of the interest-bearing stablecoin, entering a death spiral similar to UST.

This gives us the revelation that we must pay attention to the sustained profitability of the protocol. Since the YBS project is a crypto bank that absorbs deposits and lends money, the safety of the principal is of vital importance. YBSBarker's Protocol Revenue will continue to monitor the safety of each protocol, and YBSBarker's Yield Sharing Ratio will continue to monitor the protocol profit sharing ratio.

The following is the moment of violent discussion. There is no objectivity, it is purely subjective.

In addition to Sky and Ethena, choose a few more YBS new protocols. Who will become the new big opportunity?

I choose Resolv, Avalon, Falcon, Level and Noon Capital. There is no scientific reason. This is the project sense similar to the disk sense.

There is a misunderstanding here. It is believed that the YBS project is in a hurry to issue coins and is a bad project. This is not necessarily the case. There are many people who fish in troubled waters. However, for YBS, the protocol requires secondary market liquidity of the main token, similar to Ethena introducing subordinate VCs of all mainstream exchanges to form a de facto alliance of interests. In essence, it has sold USDe

However, USDe's coinage right is represented by ENA. If major institutions want to make money, they don't need to smash USDe, which will make their investment go down the drain. Stablecoins only have two states, 0 and 1, but ENA can be slowly smashed or pledged to earn income. This is the top conspiracy for Ethena's success.

Circle violently sent money to Binance and Coinbase, and Ethena adopted a "bribery mechanism" that is more characteristic of the currency circle, just like Curve War, a wonderful reuse of game theory.

Conclusion

Today is just an appetizer. After an overall review of the project, I hope everyone will have an overall perception of the current YBS market. At least you will not think that being a YBS is as far-fetched as being a USDT, but don't think that YBS is the new Meme Coin.

The credibility and capital reserves required by YBS are not within the reach of Meme. Always remember that YBS is also a currency, especially the real YBS that does not rely on national debt or the US dollar, which is not far behind the recognition of creating BTC/ETH.

Next, I will explain the issuance guide of interest-bearing stablecoins from a more detailed perspective. The mechanisms and details that are not expanded in this article will be fully explained.