Yield-bearing stablecoins have quickly caught on as one of the hottest investments in the crypto sphere. As the name suggests – they’re basically stablecoins that earn interest over time. The way they function is similar to treasury notes or fixed deposits in TradFi, and they enable users to generate yield over time simply by holding the coins in their wallet. These returns are derived from crypto native methods such as staking and DeFi lending.
The concept has caught on, particularly for institutional investors, as yield-bearing stablecoins provide regular, predictable returns without the typical volatility associated with crypto. But although the concept is still a relatively new one, the pace of innovation in the crypto industry is such that superior alternatives are already looming on the horizon.
The problem with yield-bearing stablecoins is that they lack flexibility, and that has prompted the industry’s brightest minds to come up with ways to generate more lucrative yields.
The need for higher returns has prompted the emergence of a new, stablecoin yield-as-a-service economy, pioneered by OpenTrade. The company has created a blockchain protocol based on a fork of USDC creator Circle’s Perimeter blockchain, which was built to support USDC applications and markets. In addition, OpenTrade has developed the legal and operational frameworks required by institutions to participate, paving the way for safe, compliant stablecoin yield generation through various lending and credit markets.
What’s the Difference?
Yield-bearing stablecoins are one of the hottest areas of innovation in crypto and investors can choose from multiple token types that generate yield in a variety of ways. For instance, Ethena Finance’s USDe is a yield-bearing stablecoin pegged to the dollar by delta-hedging staked Ethereum and Bitcoin. Its yield is derived from crypto-native instruments, such as options, futures and liquid staking assets, allowing investors to earn returns on their holdings through complex financial strategies, without getting involved directly.
Other kinds of yield-bearing stablecoins derive their yield from traditional financial instruments. In the case of Ondo Finance’s product, called USDY, it acts as a bridge between crypto and TradFi, with investments in short-term U.S. Treasury bonds and bank demand deposits in order to generate stable, low-risk returns.
On the other hand, OpenTrade’s Stablecoin Yield-as-a-Service is based on the concept of “vaults”, where token holders can deposit their USDC stablecoins into different token pools and receive vTokens (vault tokens) in return. The funds deposited into these pools are used to facilitate a variety of on-chain structured credit and lending products, including collateralized and uncollateralized loans, lending with real-world and digital assets, single-sided and multi-sided credit markets, fixed-term and open-term loans. vToken holders have a claim on both the underlying asset tokens in the vault, as well as any profits or losses the vault may earn.
What’s compelling about stablecoin yield-as-a-service is that it’s far more flexible, with a greater diversity of yield-generating activities, meaning investors can target higher yields, in line with their level of risk tolerance. As a result, they can earn superior risk-adjusted returns compared to traditional DeFi.
Who Are They For?
Yield-bearing stablecoins are targeted at permissionless DeFi protocols, decentralized autonomous organizations and decentralized exchange traders, but they struggle to attract traditional financial institutions and mainstream investors due to their lack of compliance. In fact, most yield-bearing stablecoins are illegal in major markets like the U.S., U.K., EU, Singapore and Hong Kong. That means their potential is restricted by a relatively small total addressable market.
The best known yield-bearing stablecoins are Ondo’s USDY and Mountain Protocol’s USDM. USDY is designed to pass most of the yield it generates to token holders, with a small fee being charged by Ondo for its operational expenses. It’s secured by tokenized U.S. Treasury and bank deposits, and offers investors daily redemptions. As for USDM, it’s a regulated, yield-bearing stablecoin that’s fully collateralized by short-term Treasury bills.
On the other hand, OpenTrade’s Stablecoin Yield-as-a-Service is targeted at every kind of financial institution, including crypto and non-crypto providers, enabling them to offer stable, predictable yield on USDC through their own individual user-facing apps and services. With it, neobanks and exchanges can offer one-click access to a full suite of white-labeled stablecoin yield products, across multiple asset classes and risk profiles.
Stablecoin yield-as-a-service can attract a much bigger audience thanks to OpenTrade’s legal framework, which offers strong protections and compliance to satisfy fintech and traditional finance, making its products ideal for both institutional and retail investors.
USDY vs OpenTrade
A straightforward comparison shows that stablecoin yield-as-a-service offers some compelling benefits versus the USDY yield-bearing stablecoin, as it’s far less restrictive
Eligibility: Although USDY has attracted a lot of attention in the crypto markets, there are severe restrictions on who is allowed to hold them. Citizens from the U.S., UK, Canada, Crimea, Cuba, Iran, North Korea, Syria, Albania, Barbados, Belarus, Cambodia, Colombia, Haiti, Jamaica, Japan, Myanmar, Nicaragua, Russia, Ukraine, Vanuatu, Venezuela and Yemen are all ineligible, as well as those from any African country, with the exception of Mauritius and South Africa. The only exemptions are applied to citizens of the U.S. and the U.K., and only if they reside in a territory that’s not on the banned list. As such, most of USDY’s holders are based in Europe, Latin America and some parts of Asia, which significantly reduces its market reach.
OpenTrade wins hands down in terms of eligibility, with global availability except for a handful of OFAC-sanctioned countries.
Redemption fees: Investors in USDY also face high redemption rates, with Ondo charging a flat fee of 20 basis points, in contrast to the zero redemption fee offered by OpenTrade. As a result, there is a significant difference in the actual net yield earned versus the advertised APY for a 30-day deposit
Deposits: OpenTrade is a clear winner here, with its instant deposits allowing for immediate interest accrual. In contrast, USDY typically takes three days to process deposits, and interest will start accruing only once that transaction has been processed.
Deposits with stablecoin yield-as-a-service are far simpler too, with the entire process occurring on-chain. The OpenTrade protocol utilizes atomic settlement to accept USDC or EURC and immediately mint V tokens and transfer them to the client’s wallet.
But for investors to get their hands on USDY, they’ll need to wait for a Temporary Global Certificate to be issued in their name, which is a document that details the USDY tokens they’re eligible to receive at the end of a restricted period of 40-50 days. They won’t be able to claim their tokens until that period has expired.
Withdrawals: USDY also makes it difficult for investors to cash out. During the restricted period of 40-50 days after deposit, no withdrawals under $100,000 are permitted and amounts over $100,000 can only be withdrawn upon submitting an email request. Add to that, withdrawal requests typically take five days to process.
OpenTrade doesn’t have any lock-up periods, and it processes withdrawals within 24 hours or less, giving investors the flexibility to move into and out of their stablecoin yield-as-a-service position at any moment.
Wallet support: Investors may also have concerns over the lack of custodian services for USDY, which does not support Fireblocks or any kind of custodial wallet, in contrast to OpenTrade, which is fully integrated with Fireblocks and can add support for alternative custodial wallets upon request.
Use cases: Another challenge for investors is that rUSDY, Ondo’s rebasing token, is difficult to integrate into yield products due to a lack of support from most protocols and exchanges. For example, rUSDY tokens cannot easily be used as collateral for a loan.
On the other hand, OpenTrade operates entirely without rebasing tokens, with its V tokens designed to increase in value daily to help investors keep track of interest accrual. This makes V tokens much more flexible in terms of their utility with DeFi protocols and exchange platforms.
USDM vs OpenTrade
USDM is a quite different product from USDY, yet it also comes with a number of deficiencies that OpenTrade has managed to sidestep with its stablecoin yield-as-a-service offerings.
Eligibility: USDM’s restrictions aren’t quite as severe, but it’s still restricted in the U.S., U.K., Canada and 25 other countries, compared to OpenTrade, which only bars users from a small number of OFAC-sanctioned nations.
Transaction limits: USDM also imposes limits on transactions, only allowing a minimum of $100,000 to be deposited or withdrawn at any time, whereas OpenTrade doesn’t have any minimum transaction amounts.
Withdrawals: For USDM withdrawals, transactions are dependent on the available liquidity in the protocol, and can take up to two days to process. Faced with such restrictions, OpenTrade’s instant withdrawal facility makes stablecoin yield-as-a-service much more attractive to investors who need greater agility.
Compliance; Whereas OpenTrade has established a clear regulatory positioning as a secured lending transaction with MiCA compliance, USDM lacks many of these protections, and has only been registered in Bermuda. As such, it does little to inspire the confidence of institutional investors.
Use cases: In terms of utility, USDM is substantially limited by its composability with DeFi protocols, as all activity must fall under Mountain Protocol’s terms and conditions. Additionally, USDM is also a rebasing token, further minimizing its utility. It’s a stark contrast to OpenTrade, which is designed to be fully composable as a fully on-chain offering with no rebasing tokens.
Liquidity: Mountain Protocol does not hold any cash reserves or other stablecoins for liquidity purposes, instead relying on over-the-counter USDC-denominated credit lines to process redemptions. With OpenTrade, there is plenty of liquidity available, as it maintains a combination of buffers and liquid assets within its collateral portfolio, enabling it to support withdrawals immediately, without having to tap into external credit sources.
Collateral: Another red flag for investors is that USDM uses its reserves as collateral for its OTC lines of credit, meaning that these funds appear to be double-pledged. OpenTrade avoids such problems as its collateral is encumbered to the creditors of the OpenTrade SPC and not subject to rehypothecation.
Conclusion
OpenTrade’s stablecoin yield-as-a-service offers fintech a more flexible way to provide stablecoin yield to their customers, embedded into existing applications and integrated with their systems and back-office operations.
As the DeFi industry continues to evolve, the introduction of OpenTrade’s innovative, MiCA-compliant stablecoin yield products provides the foundation of a more stable, regulated environment for stablecoin investors. By solving the major deficiencies of existing yield-bearing stablecoins, it’s addressing the growing demand for attractive, secure and highly liquid stablecoin investments.
