Do income-generating stablecoins have a sustainable future?

Do income-generating stablecoins have a sustainable future? Stablecoins have been around for about a decade and are dominated by heavyweights like Tether’s USDT and Circle’s USDC, which pay no yield to users and keep all revenue for themselves. But a new wave of buzz around yield stablecoins is heating up, especially against the backdrop of rising interest rates.

Today, the editor of Footsteps Home will introduce to you whether income-based stablecoins have a sustainable future. Currency friends in need should take a look!

Earlier this year, Ethena Labs launched sUSDe, a yield token (a staking version of its USDe “synthetic dollar”) that uses sUSDe to involve long and short positions. "delta-neutral" trading strategies to generate profits. Since then, sUSDe has quickly grown in popularity.

Then last week, Mountain Protocol, the issuer of yield-based USDM stablecoin, raised $8 million in a Series A round led by Multicoin Capital. Around the same time, Paxos International launched its own yield-based stablecoin USDL, with the first market being Argentina. USDM

and USDL provide users with daily returns by holding assets such as US Treasury bonds. The current annual return rate is about 5%, which is similar to the current high-yield savings accounts in the United States. Both stablecoins offer yields through automatic rebasing, meaning a user’s stablecoin holdings will automatically increase every day without any additional effort on the part of the user. USDM and USDL are regulated by Bermuda and Abu Dhabi respectively, and are pegged to the U.S. dollar on a one-to-one basis.

The big question is whether these latter yield stablecoins can remain attractive if interest rates fall.

Mountain co-founder and CEO Martin Carrica thinks they can. He noted that high-yield checking accounts have been successful even at 1.5% interest rates. He told me that if interest rates drop to zero again, the difference in yields will be minimal in the meantime, adding that by then, yield stablecoins should have established enough distribution and ecosystem to survive. But he doesn’t foresee a return to zero interest rates “in the next few years,” so the window to establish one is open.

Homegrown yield stablecoins are also restricted in most major markets (such as the United States), possibly because they are viewed as security products. But Kalika said demand for such products comes from emerging markets - where the rules may be different. Meanwhile, Paxos’s Charles “Chad” Cascarilla recently told me that such products would be helpful for anyone who doesn’t have access to U.S. dollars and the stability and security of yield-based products.

As for regulatory restrictions, Karica said jurisdictions that restrict such products will either have to withdraw regulations or risk harming local populations.

Midas founder Dennis Dinkelmeyer said income products have experienced significant growth despite the constraints. Midas also offers a yield-based token called mTBILL and currently has approximately $8 million in assets under management. He noted that tokenized Treasuries have grown 180% year-on-year and now total $1.5 billion in value locked. He said the growth reflected strong demand for such products.

Dinkelmeyer, a former Goldman Sachs employee, said new products will take time to develop, noting that USDT and USDC are gradually emerging. “It took USDT about five years to reach a $10 billion market cap and just four months to double to $20 billion,” he said.

Yield stablecoins also require strong distribution channels to achieve growth. Dinkelmeyer pointed out that "Coinbase has contributed greatly to the success of USDC, and BitMEX is a key factor in Tether's success." Similarly, he said, issuers of income products also need such channels to gain visibility.

While issuers and advocates of yield-based stablecoins are optimistic, these products will need to navigate regulatory challenges, secure strong partnerships, and establish themselves firmly within centralized and decentralized finance platforms. position to quickly achieve widespread adoption.

Market Cap of Income Tokens

Based on data dashboard created by my research and data analyst colleagues Mohamed Ayadi and Rebecca Stevens on The Block The latest chart shows Ethena Labs’ sUSDe leading the yield token category, followed by MakerDAO’s sDAI and BlackRock’s BUIDL.

“The future of yield-based stablecoins”

While BlockTower Capital is an investor in both Ethena Labs and Midas, Thomas Klocanas, the firm’s general partner and head of venture capital, admitted that yield products The category will need more innovation to achieve a sustainable future, especially if interest rates start to fall in the coming years.

Klocanas told me that while yield stablecoins backed by U.S. Treasuries are one iteration and crypto-native versions like Ethena are another, there may be more to come.

He said: “In the future, there will be many other versions in the digital asset and TradFi [traditional financial] asset space. For example, in the real-world asset space, maybe one day there will be other investment-grade asset baskets, such as but not limited to companies Bonds as a substitute for or in addition to U.S. Treasury securities.”

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