Stablecoins have become a popular medium for earning yield in the crypto market, offering a variety of strategies that can be tailored to the different risk profiles of individual investors. High interest rate opportunities are abundant, with the appropriate risks attached, while safer strategies usually yield less exciting numbers.
The diverse number of stablecoins and strategies can put users into decision paralysis, as it is hard to filter strategies that would fit their risk profiles based on what different platforms offer. On the other hand, sophisticated investors are able to take advantage of the information asymmetry in stablecoin strategies for earning passive income and higher risk-adjusted returns.
To help you, we have outlined how certain strategies generate their yield and the best stablecoin interest rates below.
To generate yield, stablecoins can be used in lending services, market making, options selling, or even trading. Due to the volatile nature of discretionary trading strategies and options selling, many investors prefer not to invest in them despite offering high yields.
For example, Ribbon Finance is a popular options protocol, helping USDC depositors sell put options on ETH to earn options premiums. If the ETH price goes below the put option’s strike price, Ribbon depositors would have to pay the option buyers the difference in ETH price, incurring a loss.
Many stablecoin investors prefer generating yield through lending or market making, as they are not as exposed to speculative risks. However, the creditworthiness of lenders and the nature of market making is important. As recently exposed, Gemini Earn stablecoin stakers were lending to counter parties that went insolvent. Though they offered stablecoin yields of up to 8% APY, users ended up losing money instead.
As such, investors now prefer to use transparent DeFi applications that help earn interest by offering overcollateralized loans to borrowers, or stablecoin market making. Though these strategies often offer less than the 8-12% offered by centralized lending platforms and crypto exchanges, they come with much lower risks.
The highest stablecoin interest rates are currently provided by options selling protocols and centralized crypto lending platforms. Ribbon Finance currently projects up to 24.08% in USDC APY for their options selling vault, while centralized platforms like Nexo have programs that lets you earn up to 12% interest in Nexo tokens and stablecoin yield.
If users would like to avoid the risks that come with these strategies, they can opt to use DeFi protocols instead.
Aave is a decentralized lending and borrowing platform for crypto assets, allowing borrowers to provide assets as collateral to receive a line of credit. If someone needs extra capital, but does not want to sell their assets like ETH or BTC, they can deposit them into Aave and borrow popular stablecoins such as USD Coin (USDC), Binance USD (BUSD), and Tether (USDT).
Stablecoin lending yields around 6 to 8% APY on Aave, depending on the borrowing demand on the respective stablecoin.
Uniswap is a decentralized exchange that allows users to market make for digital assets, providing liquidity on the ETH-USDC pair for other users to trade, for example. Though Uniswap is flexible, there may be too many sophisticated market participants competing to generate yield on it, leaving less money for more novice users. There is no base interest rate on Uniswap, as it depends on the individual strategy and trading volumes by pool.
Most users prefer to use another decentralized exchange called Curve. Since Curve allows users to use their algorithm for market making, it is simple enough for most investors to use. Curve’s algorithm is especially useful for stable-asset pairs, like USDC and USDT, or ETH and stETH. Curve yields approximately 2.5% for providing liquidity on the USDC, USDT, and DAI trading pool.
The above list of protocols and interest rates are just a few of the many. Other protocols like Compound, Convex, Balancer, and Yearn also enable users to deposit stablecoins to earn yield, somewhat similar to the compound interest one can earn in traditional savings accounts and financial services products.
The open and permissionless nature of smart contracts and Web3 has led to a plethora of financial applications users can opt to use for their stablecoin deposits. Each protocol and strategy has different yields and risk, allowing users to customize their own stablecoin yield portfolio.
If you are looking for the best risk-adjusted stablecoin interest rates that avoids high risk strategies, you may opt to hold OUSD, which currently yields around 8% to 10% APY for users.
For investors looking to get the most out of their stablecoins, using advanced strategies can make a big difference. Beyond basic lending and market-making, there are more complex methods that can boost returns and manage risk.
This strategy involves borrowing stablecoins against your crypto assets. You can then reinvest the borrowed stablecoins into yield farming to compound your returns. It’s risky because if your collateral value drops, you might face liquidation. Platforms like Aave and Compound allow leveraged farming, letting you maximize your APY by managing your collateral and loans carefully.
This entails taking advantage of different interest rates across various DeFi platforms. For example, if Aave offers a higher APY for USDC than Compound, you can move your funds to Aave to get the better rate. Tools like DeFi Saver and InstaDapp can help automate this process, making sure your assets are always earning the highest yield. This strategy needs active monitoring but can greatly increase returns.
Many DeFi platforms reward users with governance tokens, which can be another way to earn. For example, staking on Curve not only gives you CRV rewards but also lets you participate in governance. By farming these tokens and voting on proposals, you can boost your overall yield.
These can add more ways to earn. Platforms like Synthetix let you trade synthetic assets, giving you exposure to different financial instruments without owning the actual assets. You can use these derivatives to hedge positions or bet on market movements, adding another layer to your yield farming.
To reduce risks, using insurance protocols can be very helpful. Platforms like Nexus Mutual and Cover Protocol offer protection against smart contract failures, hacks, and other issues. By insuring your positions, you can protect your capital and safely go for higher yields.
Some protocols have unique ways to increase yields. For example, Origin Dollar (OUSD) uses automated strategies to balance assets across multiple DeFi platforms, aiming for the best returns while keeping full liquidity. OUSD’s approach avoids speculative risks, ensuring steady and competitive yields. By using OUSD, you can benefit from advanced yield strategies without actively managing your investments.
By using these advanced strategies, you can boost your stablecoin yields while managing risks. Let’s take a closer look at how OUSD does exactly that.
OUSD is a stablecoin-collateralized, yield-generating stablecoin redeemable for other stablecoins such as USDC, USDT and DAI. OUSD utilizes its xOGN governance token to analyze and integrate potential DeFi strategies, allowing the protocol to deploy its stablecoin collateral to earn yield. The protocol utilizes rebalancing between strategies and liquidity pools, designed to maintain the highest yield possible at all times.
The proprietary strategies created by OUSD’s engineers are not only secure, but have highly competitive yields while all strategies remain transparent on Ethereum’s blockchain. Certain strategies can only be executed by OUSD, but others can be copied. The fact is, Ethereum network costs may be too high for many users, and they would prefer to use OUSD and avoid such fees.
OUSD does not require staking or lock-ups and can be simply held in a crypto wallet. Yield generated by OUSD will be sent directly to users’ wallets, like a personal crypto savings account. With OUSD’s radical transparency, users are confident holding it to generate passive income.
Using stablecoins can help users generate more yield than the traditional interest accounts available to them. Some users employ this as part of a broader yield farming strategy. Users from certain countries may suffer from hyperinflationary fiat currencies and use stablecoins to store value and generate yield.
With OUSD’s high yields and security, it is definitely worth it to earn interest on stablecoins.
OUSD can be purchased through the Origin Dapp or through centralized exchanges such as Kucoin or Gate. Users must hold OUSD in a crypto wallet to receive yield. If storing more than $1000 worth of crypto, it is generally recommended to use a hardware wallet like a Ledger.
