Exploring passive income; USDC, USDT, DAI, and others

As stated in this article, I am gradually unloading my altcoins during market rallies. Here are my strategies for harvesting returns on stablecoins during the current state of the market.

First, it’s important to understand that stablecoins are among the most traded assets in the cryptocurrency space, offering stability amid market volatility. The dramatic collapse of Terra Luna’s UST in 2022 highlighted the need to understand stablecoins’ mechanisms, risks, and longevity. This analysis delves into the business models, tokenomics, sustainability, and stickiness of major stablecoins like Tether (USDT), Circle’s USDC, and DAI. Additionally, I will explore how you can earn passive income with these stablecoins in DeFi, potentially outperforming traditional savings accounts.

The total market cap for stablecoins is approximately $169.392 billion, with Tether (USDT) commanding a dominant 69.73% market share, followed by USDC at around 20%. The stablecoin sector has witnessed explosive growth, with aggregate transfer volumes surging from $800 million to over $31 billion in just five years. This meteoric rise highlights the escalating importance and adoption of stablecoins in the financial ecosystem.

Tether (USDT): Currently, Tether ranks #1 on DeFi Llama with $13.37 million in 24-hour fees. Its business model hinges on generating revenue through interest on reserves and transaction fees. Despite its resilience in maintaining the peg amidst heavy trading volumes, Tether has faced significant scrutiny over transparency and past instances of asset freezes. A quick search for “Tether freezes assets” will reveal why many in the crypto community lean towards USDC. Tether’s opaque policies and history of freezing assets contribute to a perception of risk, pushing users towards alternatives.

USD Coin (USDC): USDC holds the #2 spot on DeFi Llama with $4.13 million in 24-hour fees. Renowned for its transparency and decentralised values, USDC is said to be fully backed by cash and short-duration U.S. Treasuries. Its stability and broad adoption in DeFi and institutional finance bolster its market stickiness and perceived safety. USDC is commonly utilized on decentralized platforms like Uniswap, PancakeSwap, and Curve Finance, as well as centralized exchanges such as Coinbase, Binance, and Kraken.

Dai (DAI) maintains its peg through an over-collateralized structure and remains a staple in Ethereum’s DeFi ecosystem. Despite transitioning from an ETH-backed model to include centrally issued assets like USDC, Dai continues to be the most used stablecoin on Ethereum’s DeFi platforms. This position reflects its significant integration and utility. However, emerging competitors and evolving projects could impact its dominance in the future.

USD Coin (USDC) emerges as the most robust and transparent stablecoin among the three, making it a safer choice given its stickyness and sustanability as well as a strong market presence. While Tether (USDT) and Dai (DAI) each have their strengths, the issues surrounding Tether’s centralization and Dai’s revenue shift influence their relative safety. Therefore, for those seeking stability and transparency, and decentralised stable coins USDC is likely the preferable option in the current landscape.

Hyperliquid Vault

The Hyperliquidity Provider (HLP) vault on Hyperliquid exemplifies a cutting-edge approach to decentralized finance, blending user engagement, sustainability, and fairness. With $255,194,556 in Total Value Locked (TVL) and a variable 10% APR, HLP attracts liquidity providers by offering a straightforward, fee-free model where profits are shared based on each participant’s deposit. This user-friendly design promotes stickiness through seamless participation and automatic reward compounding.

Sustainability is a cornerstone of the HLP vault, utilizing sophisticated market making strategies to ensure consistent liquidity across Hyperliquid’s assets. By integrating fair pricing data from both Hyperliquid and major centralized exchanges and maintaining transparency through on-chain tracking, the vault manages risk effectively despite potential losses from adverse trades. The incorporation of external market makers further supports the vault’s long-term viability and strategy resilience.

Hyperliquid has rapidly ascended to become a leading decentralized perpetual futures platform, with its TVL skyrocketing from $10 million to over $650 million in just one year. Leveraging Arbitrum’s speed and the Ethereum community’s support, Hyperliquid has significantly boosted its market adoption and stickiness. By providing a transparent, equitable, and high-performance trading environment, Hyperliquid addresses traditional DeFi challenges and sets a new standard, driving its remarkable success and prominence among users.

Syrup

Syrup is an innovative decentralized protocol, built on top of the Maple Finance RWA lending market. By leveraging Maple’s renowned lending infrastructure, Syrup brings institutional-grade lending to the broader DeFi community, combining robust security with the flexibility and inclusivity of decentralized finance. Users can deposit USDC into Syrup and receive LP tokens (syrupUSDC), immediately earning yields sourced from overcollateralized loans to major crypto institutions.

With a current $77m in Total Value Locked (TVL) and an variable 11% APY, Syrup stands out by providing consistent high yields that outperform many DeFi lending platforms. This performance is underpinned by Maple’s extensive infrastructure, which has facilitated $4.4 billion in loans to date. Institutional borrowers place $26 million in collateral, while $14.9 million is borrowed, generating yields from both the institutional collateral (7.5% APY) and the borrow rate (9.34% APY). Syrup’s collateralization ratio of 146.76% ensures a robust security framework, making it a reliable choice for yield-seeking users.

Syrup also introduces additional features such as ‘drips’ or points for lenders, with a planned token launch later this year. By locking up USDC, users can earn multipliers on their points, though this involves higher risk. Overall, Syrup effectively integrates Maple’s high-security lending model into the DeFi space, offering substantial yields and demonstrating significant market adoption and confidence.

Morpho

Morpho has recently made headlines by securing $50 million in fresh funding to bolster its decentralized lending and borrowing protocol on Ethereum. This significant capital injection highlights Morpho’s transition from application-focused solutions to infrastructure development. Notably, Morpho Blue, the protocol’s new iteration, has achieved remarkable growth, surpassing $1.7 billion in deposits on Ethereum within just six months and amassing $120 million on Base in under a month. This rapid adoption underscores Morpho’s ability to deliver robust and scalable decentralized financial services.

Morpho operates with a governance-less protocol model where Morpho Vaults, the core component, are managed by their respective smart contract owners. These vaults offer flexibility for setting performance fees, which can be as high as 50% of the interest earned. The USDC vault, for example, currently offers an annual percentage rate (APR) of 7.98%. With a Total Value Locked (TVL) of $1.4 billion and an annualized fee generation of $24.7 million, Morpho showcases its capability to provide high-yield opportunities in a decentralized framework. Users benefit from a transparent system where returns are driven by overcollateralized institutional loans, providing both security and attractive yields.

The protocol’s performance is further enhanced by its sophisticated APY and rewards computation methods, ensuring that users receive accurate and competitive returns. With a focus on high-quality asset management and strategic growth, Morpho is poised to solidify its position as new decentralized lending platform. The combination of substantial funding, rapid deposit growth, and advanced protocol features positions Morpho as a up and comming player in the evolving DeFi landscape.

Final Thoughts

Stablecoins will continue to be the backbone of many DeFi dApps, finding applications in yield generation, farming, liquidity provision, and trading. Their stability and widespread use underscore their importance in the ecosystem. To maintain their stability and effectively support DeFi protocols, incentivizing liquidity is crucial. The more liquidity a protocol can attract, the more stable the peg of its stablecoin, fostering greater trust and usage within the DeFi space.

While this article provides a comprehensive overview of major stablecoins, it’s important to note that other significant platforms such as Aave, PancakeSwap, Curve Finance, and Aerodrome were not covered. These platforms also offer intriguing opportunities and come with their own sets of risks and rewards. Before diving into any DeFi investment, it’s crucial to conduct thorough research and consider both the potential upside and inherent risks. DeFi is an evolving space, and while the rewards can be substantial, the associated risks must be carefully weighed to make informed decisions.

So, will simply farming stablecoins allow you to outperform the market? In an average market scenario, probably not — except in cases of significant market drawdown. However, earning a high yield on the idle portion of your portfolio can provide a valuable additional return, as long as you remain mindful of the risks that come with these strategies.

Until next time.

C

Disclaimer: The information presented by Christopher is for general informational purposes only and should not be considered financial, investment, or legal advice. While the content is based on sources believed to be reliable, there is no guarantee regarding its accuracy, completeness, or timeliness. Any reliance you place on the information provided is at your own risk. Christopher’s commentary may include forward-looking statements that involve risks and uncertainties, and actual outcomes may differ significantly from those anticipated.

Christopher may hold positions in assets or securities mentioned and reserves the right to buy or sell any of these without prior notice. It is strongly recommended that you consult a qualified financial advisor or other professionals to assess the risks and suitability of any investment decisions. You are solely responsible for conducting thorough research and due diligence before making any financial commitments. Past performance is not a reliable indicator of future results, and Christopher disclaims any liability for direct, indirect, or consequential loss or damage arising from the use of this content. By accessing Christopher’s insights, you agree to the terms of this disclaimer.