Stablecoin yield, explained

How does stablecoin yield work?

1. 1

   You hold a dollar stablecoin

   US law defines a payment stablecoin as a digital asset whose issuer is obligated to redeem it for a fixed amount of money. The same law, the GENIUS Act, says permitted issuers may not pay holders interest or yield solely for holding the coin, and the EU's MiCA rules bar issuers of e-money tokens and crypto-asset service providers from granting interest on them. Yield therefore comes from other products, each with its own provider, terms and risks.

2. 2

   A product puts the dollars to work

   There are three common sources. A lending pool pays depositors from the interest that borrowers pay. A private-credit product lends to institutional borrowers. A tokenized note can hold short-term US Treasuries and bank deposits.

3. 3

   The rate follows conditions

   In a lending pool, the rate moves with how much of the pool is borrowed and, in Jupiter's words, with supply and demand. For loan-based products it also depends on how borrowers perform. Maple says its yield rate may vary and could be zero or negative in adverse market conditions. No one promises a rate.

4. 4

   You move dollars in and out, within limits

   Withdrawals can be limited. Jupiter says Lend has dynamic limits on how much can be withdrawn at any single moment. Maple's FAQ says syrupUSDC normally has instant liquidity and that in rare cases withdrawals can take around 24 hours, while its risk disclosures say processing can take significantly longer when demand is high or liquidity is low, and that there is no assured maximum withdrawal period. In Neovestor, syrupUSDC and USDY are entered and exited by swap.

Which earn products can you access in Neovestor?

Neovestor is an interface to three earn products. It doesn't pay the yield: each product's rate and terms come from its provider, and the assets sit in your own wallet.

USDCCirclesyrupUSDCMapleUSDYOndo

In Neovestor, Cash is one balance made of idle USDC plus the Cash earn position, which is USDC lent through Jupiter Lend. Every rate is labeled variable, with an as-of time taken from the source. The same Cash balance is planned to fund the Neovestor card, which is coming soon, and the self-custody page explains who controls the wallet that holds these assets.

Where does the yield come from?

Stablecoin yield is a payment for lending money or taking a risk. In a pooled lending protocol, lenders earn from the interest that borrowers pay. Aave's documentation, used here only as a general example of how pooled lending works, says supplier yields are funded by borrower interest net of the reserve factor, and that interest rates adjust with utilization.

Maple's risk disclosures name two sources for syrupUSDC: interest on overcollateralized loans to institutional borrowers, and supporting yield strategies such as futures basis trading and liquidity provision in decentralized finance. The Federal Reserve describes private credit as debt-like instruments from non-bank entities that are not publicly traded, and notes that such loans are illiquid because there is no secondary market.

Ondo describes USDY as a tokenized note. Depending on the issuance date, its backing may be short-term US Treasuries, shares of the iShares Short Treasury Bond ETF or bank demand deposits. Treasury bills are sold for terms from four weeks to 52 weeks and pay their face value at maturity.

Why is the rate variable?

The product sets the rate, and no one promises it. In a lending pool, utilization is the share of the pool that is currently borrowed. When a large share is borrowed the rate rises, and when most of the pool is idle it falls. Jupiter describes Lend rates as variable, adjusted automatically based on supply and demand.

Labels differ between apps. The CFPB's Regulation DD defines the annual percentage yield, or APY, as a rate reflecting the total interest paid on an account, based on the interest rate and how often interest compounds, while the interest rate itself does not reflect compounding. On-chain screens sometimes say APY, APR or just rate, so check what a product's own label includes.

That is why Neovestor labels every Earn rate variable and shows an as-of time. The Neovestor FAQ has quick answers.

Is stablecoin yield covered by deposit insurance?

No. The GENIUS Act says payment stablecoins can't be backed by the full faith and credit of the United States or be subject to FDIC deposit insurance, and it makes it unlawful to represent otherwise. The FDIC lists crypto assets among the products that deposit insurance does not cover.

Earn products add their own risks. Jupiter's documentation says Jupiter Lend, like all DeFi protocols, contains smart contract risk, market risk and other factors which can cause loss of user funds. Maple says that if liquidated collateral does not cover a defaulted loan, the pool takes a net loss shared proportionally among all lenders. Ondo says a holder of USDY may incur losses, including total loss of the purchase price.

Who can use each earn product?

Each provider sets its own jurisdiction rules. Maple lists the United States and Australia, among others, as restricted for syrupUSDC. Ondo lists US persons, Canada and a number of other countries and regions as prohibited for USDY, and lists Brazil, the EEA, Hong Kong, Malaysia, Singapore, Switzerland and the United Kingdom as restricted to investors who meet local categories, such as professional or qualified investors.

In Neovestor, availability depends on your country, and the app shows the reason when a product is restricted for you.

What are the risks of earning on stablecoins?