Earnings stablecoins: Comparison of risks, returns and market trends

Original author: Nemi_0x Translated by: LlamaC

(Part: Burning Man 2016, about Tomo: eth Foundation illustrator)

"Recommended message: This article mainly discusses the risks, returns and market trends of various bond stablecoins, and discusses Ethena's sUSDe, Sky Protocol's sUSDS, Usual's USD0++, Frax Finance's sfrxUSD, Resolv's USR, Ondo The working mechanism, risk assessment and return generation methods of stablecoins such as USDY and Level slvlUSD were analyzed in detail. "

Ethena has popularized the concept of income-based stablecoins through sUSDe, which has aroused people's interest and criticism due to the risks such as counterparty risks or negative capital rates. Despite these concerns, USDe has now reached a market capitalization of $5.8 billion, which has cemented its product market fit and demonstrated its ability to scale in the crypto ecosystem even after the Bybit hack.

Its success also paves the way for a new wave of profit-generating stablecoins that use different methods to generate profits, each providing unique risk-reward characteristics. This diversification provides opportunities for capital allocation, whether through risk management or optimizing returns based on market conditions.

From Level, Resolv, Sky, Frax, Elixir, Usual to Ondo, these stablecoin protocols each use a unique mechanism to generate revenue. In this article, we will explore how they operate, the risks associated with them, and the potential rewards they provide.

1.Ethena's sUSDe

sUSDe

n: left;">Ethena's sUSDe, as a $USDe's yield-type counterpart, has provided a wide range of yields since its launch, with an annualized rate of return of 4.3% at its peak at 55.8%.

USDe maintains its automated Delta neutral hedging by anchoring stability, ensuring that volatility in the price of collateral assets is offset by corresponding changes in the hedge. Since these assets can be perfectly hedged with equal short positions, USDe operates at a 1:1 mortgage rate, eliminating the need for over-collateralization.

sUSDe is a cumulative earnings version of USDe, requiring users to pledge USDe To earn earnings. Ethena’s rewards are mainly from shorting perpetual futures positions, which charge funding rates from exchanges. In addition, the pledge income from $stETH provides an additional layer of return for $sUSDe.

In 2024, the average BTC funding rate was 11% and the ETH funding rate was 12.6%, resulting in an average annualized sUSDe return of 18% for the whole year.

usde’s collateral

As of now, sUSDe offers a 10.82% yield, Ethena has obtained a "C" risk rating on exponential.fi, reflecting the following considerations:

Low collateral risk, mainly due to exposure to liquid staking derivatives (LSDs).

Severe reliance on off-chain calculations, which introduces additional complexity.

Touching proof-of-stake validators has potential risk of cutting that could lead to partial losses of staking assets.

exponential.fi risk rating for Ethena

It is worth noting that Ethena made transparent after the Bybit hackThe response ensures that USDe remains over-collateralized, and its support assets are securely stored in off-site custody solutions.

Ethena's communication statement after the hacking incident

For transparency, Ethena takes monthly asset custody snapshots, providing a clear view of the assets behind USDe. As of January 30, 2025, the snapshot report shows:

USDe Supply: $5.739 billion

Copper Custody Assets: $2.573 billion

Ceffu Custody Assets: $3.045 billion

Cobo Custody Assets: $5.08 million

Coinbase Web3 Wallet Assets: $100 million

Assets in the minting/redemption process: $30.00m

Total support assets: $5.753 billion

Reservation fund: $60.41 million

Total support, including reserves, as a percentage of USDe: 101.30%

This reinforces USDe's over-collateralization and Ethena's commitment to transparency.

2. Sky's sUSDS

sUSDS's rate of return

Sky protocol (formerly MakerDAO) provides a 6.5% rate of return through its Sky Savings Rate (SSR) module. Users can pledge USDS to obtain sUSDS, and its value will automatically grow over time.

Collectives and Guarantees

$USDS is supported by a hybrid crypto assets (ETH, wstETH, WBTC) and real-world assets (RWAs) such as Treasury bills, ensuring a 229.6% collateral rate to provide a high degree of security.

Source of output generation, USDS revenue comes from multiple sources of income:

Lending Stability Fees: The borrower of the USDS pays a stability fee, which is redistributed to the sUSDS holder.

Liding Fees: The fees incurred for liquidating an under-collateralized USDS loan will pay off for $sUSDS.

Risk-weighted asset investment: This agreement strengthens Sky savings rates by investing in Treasury bonds and high-yield bonds.

Risk Overview

Sky holds a "B" risk rating on exponential.fi, with most risks related to systemic vulnerabilities in the underlying blockchain, protocol, or assets. By holding sUSDS, users can obtain diversified revenue mechanisms, thereby achieving stable value accumulation over time.

5. Resolv's USR

Resolv also uses the delta neutral strategy to generate returns

USR is a stablecoin designed to use the crypto-native currency market to obtain returns independently of real-world asset risks. Unlike traditional stablecoins, $USR is powered by ETH and its derivatives, using a delta neutral strategy to maintain protection from crypto market volatility.

However, knowTo the inherent risks of delta neutral strategies, Resolv introduces a scalable tokenized protection layer, the Resolv Liquidity Pool (RLP), which absorbs these risks while providing leveraged returns farming opportunities.

The main features of USR and Resolv:

Stability supported by ETH: Solely collateralized by $ETH and LSTs, hedging price fluctuations by shorting perpetual futures.

Cast & Redemption: Users can mint or redeemed USR with liquidity collateral in a 1:1 ratio, ensuring seamless access and stability.

Resolv Liquidity Pool (RLP): An over-collateralized insurance pool designed to improve long-term stability and risk protection.

Staking and income: Although USR itself does not generate income, users can earn income through pledge by using $stUSR. The current 7-day pledge yield is 5.74%.

By integrating a powerful model and a dedicated insurance pool, Resolv ensures security, flexibility and flexibility in a volatile market, making USR a stable, reliable and efficient medium of exchange in DeFi.

6. Ondo's USDY

USDY's yield is currently 4.35%

Ondo Finance's USDY is a tokenized secured notes backed by short-term U.S. Treasury bonds and bank deposits. It aims to combine the accessibility of stablecoins with high-quality, earnings-producing assets to provide non-U.S. investors with a compliant way to earn returns denominated in US dollars.

Collectives and Guarantees

USDY is backed by: -Short-term US Treasury bills: High liquidity, low risk backed securities. -Bank current deposits: Enhance liquidity to ensure timely redemption. - Bankruptcy isolation structure: USDY is issued by Ondo USDY LLC, a legal entity independent of Ondo Finance that ensures that the token holder is the sole creditor in the event of financial problems.

Earning generation

$USDY generates income through short-term US Treasury bonds, providing a return of more than 4%. The income automatically accumulates, increasing the redemption value without manual application. USDY comes in two forms: the cumulative version (USDY), which increases the price of each token as the earnings accumulate; and the reset version (rUSDY), which maintains an anchor of $1.00, but distributes the gains by increasing the holder's token balance. For example, if the price of USDY rises from USD1.00 to USD1.01, rUSDY holders will receive more tokens than price changes.

7. Level's slvlUSD

slvlUSD's historical annualized rate of return

Level is a decentralized stablecoin protocol supported by Dragonfly/Polychain. Level issues lvlUSD, a stablecoin that allows users to earn/reward from multiple crypto-native sources, including lending protocols and restakes, while maintaining liquidity in DeFi.

$lvlUSD is a stablecoin powered by $USDC and $USDT that are deposited into @aave to generate underlying benefits, thereby eliminating the opportunity cost of users. The aUSDT and aUSDC receipt tokens are then restaked in @symbioticfi, ensuring the security of the decentralized network while maintaining a stable economic security pool. Over time, Level aims to stack additional restaking income on top of the underlying income, while the Symbiotic points accumulated through the pledge will be returned to the user.

Level maintains a lower risk profile compared to other earning stablecoins by leveraging highly liquid and secure DeFi protocols. Aave, for example, has a total locked position value of more than $15 billion, is one of the few DeFi platforms that can generate revenue on a large scale. In addition, Level's fortuneNo centralized counterparty risks or active reserve management can minimize operational risks while ensuring complete on-chain transparency.

lvlUSD holders can pledge it to earn slvlUSD to earn attractive on-chain earnings, with a current yield of 13.69%, calculated by dividing the agreement revenue to slvlUSD by the average daily market value of slvlUSD since the last reward allocation and annualized by compound interest (past performance does not guarantee future results).

Level experienced rapid growth, with lvlUSD's market cap reaching $60m, thanks to retail and institutional demand, as well as key integration with @MorphoLabs, @spectra_finance and @pendle_fi. Users can borrow USDC using lvlUSD as collateral on Morpho or lock a fixed PT-slvlUSD rate on Spectra and Pendle.

In addition, Level runs an XP program where users earn Level XP by depositing lvlUSD on the farm or providing liquidity in Curve, Spectra, and Pendle pools, further enhancing their DeFi utility and ecosystem engagement.

Level's posts after integration with Pendle

8. How stablecoin returns fluctuate with the market

Stablecoin yields often fluctuate based on broader market sentiment, reflecting the dynamics of bull and bear cycles. An obvious example is Ethena’s sUSDe, which part of its earnings comes from shorting assets such as ETH and charging financial fees. During a bull market, as traders establish long positions, the capital rate rises, thereby increasing the yield of sUSDe. On the contrary, under bear market conditions, the capital rate turns negative, reducing the generated returns. This correlation highlights how earning stablecoins are affected by market trends, making their returns appear dynamic rather than fixed.

Aggregated capital rates for multiple crypto assets

The above image shows the aggregated funding rates for various crypto assets from early November to the present. After December 9, 2024, the capital rate showed a significant decline, with the February rate turning negative for a long time, indicating that traders were mainly shorting the market. This long-term negative capital rate indicates an increase in bearish sentiment, and short sellers pay to maintain their positions, reflecting a shift in market dynamics.

sUSDe Historical Annualized Rate of Return from the end of 2024 to the present

During the same period, the rate of return of sUSDe (the pink line) remained high until mid-December, and then began to decline and eventually stabilized between 7-15%. This trend highlights the correlation between bullish sentiment in the market and returns of certain profitable stablecoins.

Similarly, slvlUSD generates revenue by depositing USDT/USDC into Aave and obtaining supply APY, which is also affected by market sentiment. During the bull market, on-chain traders borrow more stablecoins to increase their long exposure, thereby driving up stablecoin demand and correspondingly increasing the supply of lenders like Level APY. This relationship reinforces the response of DeFi stablecoin yields to market cycles, with increased lending activity leading to higher returns from liquidity providers.

USDC's supply yield on Aave V3

This chart shows the yield on USDC on Aave V3 (Ethereum), peaking at 13.72% on December 20, 2024, before decreasing to 3.42%. This reflects changes in market sentiment, where higher borrowing yields are driven in bull markets, while lower demand during bear markets, thereby reducing returns.

slvlUSD's historical annualized rate of return

slvlUSD chart shows a similar trend because its yield partly correlates with USDC lending yields on Aave, although othersFactors, such as the proportion of lvlUSD pledgers, also play a certain role. Overall, in a bear market, interest rates for yield-based stablecoins fall, as most stablecoins rely on borrowing demand or fund rate dynamics, both of which weaken when sentiment turns negative.

Bitcoin and other cryptocurrencies from the end of the fourth quarter to the present year

Since the beginning of December, the market has been in a range-to-stop/downward trend, reflected in the $BTC and other cryptocurrencies (excluding the total market value of the top 10 cryptocurrencies), which directly affects the interest rates of earnings stablecoins.

However, new solutions are emerging to alleviate the problem of falling yields, especially through Pendle. By purchasing principal tokens (PTs), users can lock in fixed income while holding underlying assets, effectively shorting variable income as hedging. Additionally, Pendle’s Boros will enable long and short positions at fund rates, allowing protocols like Ethena to hedge down fund rates, thus ensuring more stable and competitive returns for users.

Conclusion

7 earning stablecoins/yield coins from December 19, 2024 to February 28, 2025

Earning stablecoins are significantly affected by wider market sentiment, which is reflected in the trend of the yields of all six analysed stablecoins falling below 15%. Among them, slvlUSD performed well, providing the highest returns in 5 of the last 11 weeks and the second highest returns in the remaining 6 weeks. Furthermore, slvlUSD is consistently superior to sUSDe and sUSDS every week.

The earnings of the past 11 weeks of earnings stablecoins

It is also crucial to consider how the earnings are generated: slvlUSD provides real benefits, derived from Aave, andUSD0++ relies on emissions and incentives, which are fundamentally different mechanisms.

SlvlUSD has a low risk-reward characteristic due to its dependence on Aave-based earnings generation mechanism, but it still maintains a stable performance, maintaining over 10% during this period, with an average of more than 35%, making it one of the strongest yield stablecoin options in the current market environment.

If bullish sentiment returns, the return rate of return of profitable stablecoins may rise, driven mainly by the increase in demand for stablecoins to lend and the market capital rate to positive values.

Comparison of income-type stablecoins