Stablecoin Yield-As-A-Service vs Yield-Bearing Stablecoins: Which Is Best?

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As a seasoned investor with decades of experience under my belt, I have seen numerous yield-bearing stablecoins come and go, each promising the moon but delivering little more than disappointment. However, OpenTrade’s innovative stablecoin yield-as-a-service offering has caught my attention like no other.

Stablecoins that provide returns, often referred to as yield-bearing stablecoins, have become a popular choice among cryptocurrency investors. In essence, these digital assets function similarly to traditional savings products like treasury notes or fixed deposits, but in the crypto world. By holding these coins within their digital wallets, users can accumulate returns over time without actively trading or engaging in complex transactions. The income generated comes from crypto-specific methods such as staking and decentralized finance (DeFi) lending.

The idea has gained traction, notably among institutional investors, as yield-generating stablecoins offer consistent, stable returns while minimizing the usual volatility linked to cryptocurrencies. However, despite being a novel concept, the rapid advancements in the crypto sector suggest that more advanced alternatives are starting to appear 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. 

Due to the demand for greater earnings, a novel, secure economy based on stablecoin yield-as-a-service has arisen, spearheaded by OpenTrade. This enterprise has constructed a blockchain system, modeled after Circle’s Perimeter blockchain (the platform behind USDC), designed specifically to facilitate USDC applications and markets. Furthermore, OpenTrade has established the necessary legal and operational structures for institutions to engage, thereby creating a path for secure, compliant stablecoin income generation through diverse lending and credit platforms.

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 types of income-generating stablecoins earn their yield from conventional financial assets. For instance, USDY, the product by Ondo Finance, functions as a link between cryptocurrencies and traditional finance (TradFi). It invests in short-term U.S. Treasury bonds and bank demand deposits to produce steady, low-risk returns.

As a crypto investor, I find OpenTrade’s Stablecoin Yield-as-a-Service model intriguing. Instead of traditional token storage, they offer “vaults” where I can deposit my USDC stablecoins into various token pools and receive vTokens (vault tokens) in exchange. These funds are utilized to create a range of on-chain credit and lending products such as collateralized and uncollateralized loans, lending with both real-world and digital assets, single-sided and multi-sided credit markets, and fixed-term and open-term loans. What sets this apart is that vToken holders have a claim not only on the underlying asset tokens in the vault but also any profits or losses the vault may accrue.

From my perspective as an analyst, the allure of stablecoin yield-as-a-service lies in its adaptability, offering a wider range of opportunities for yield generation. This diversity allows investors to pursue higher yields that align with their risk appetite. Consequently, they stand to gain superior risk-adjusted returns compared to conventional DeFi, making it an appealing choice for many.

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. 

Among the most recognized yield-earning stablecoins are Ondo’s USDY and Mountain Protocol’s USDM. USDY is structured to distribute most of the income it generates to token owners, while a minimal fee is kept for Ondo’s operational costs. It derives security from tokenized U.S. Treasury and bank deposits, allowing daily redemptions to investors. Concerning USDM, it’s a regulated stablecoin that earns yield, fully backed by short-term U.S. Treasury bills.

In contrast, OpenTrade’s Yield-as-a-Service for Stablecoins caters to all types of financial entities, be they cryptocurrency or traditional finance providers. This service empowers them to provide a steady, reliable return on USDC via their custom user applications and services. As a result, neobanks and exchanges can effortlessly offer a variety of white-labeled stablecoin yield products with just one click, spanning various asset classes and risk levels.

Through OpenTrade’s robust legal structure providing strong safeguards and adherence to both fintech and traditional finance regulations, Stablecoin yield-as-a-service becomes more appealing to a wider range of investors. This regulatory compliance makes the products suitable for both large institutional investors as well as 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 

Holding Restrictions: Due to strict limitations, not everyone can own USDY, a digital currency that has gained popularity in the cryptocurrency markets. People from countries such as 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 prohibited, along with all African nations except Mauritius and South Africa. The only exceptions to these rules apply to residents of the U.S. and UK, but only if they live in regions not on the restricted list. This means that most USDY owners come from Europe, Latin America, and certain parts of Asia, thereby limiting its potential market reach.

OpenTrade clearly outshines others when it comes to eligibility, offering its services on a global scale, excluding only a few countries under OFAC sanctions.

As an analyst, I’d rephrase it like this: When investing in USDY, I noticed a substantial disparity between the promised Annual Percentage Yield (APY) and the real net yield due to high redemption charges. Ondo levies a flat fee of 20 basis points for redeeming funds, whereas OpenTrade offers a zero-redemption fee. This difference significantly impacts the earnings from a 30-day deposit.

Deposit Process: OpenTrade stands out due to its swift deposit feature enabling prompt accumulation of interest. On the other hand, USDY requires a waiting period of three business days before processing deposits, and the accrual of interest commences once this process is completed.

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. 

As a crypto investor, I’ve found that investing in USDY comes with certain challenges when it comes to cashing out. For a window of approximately 40-50 days post deposit, withdrawals below $100,000 are not allowed, and even if the amount exceeds $100,000, you need to send an email request. To make matters more complex, withdrawal requests often take five business days to process.

With OpenTrade, there are no restrictions on when you can make moves, as it doesn’t impose lock-up periods. Furthermore, it ensures that your withdrawal requests for stablecoin yield-as-a-service positions are processed in 24 hours or less, providing investors the freedom to swiftly enter and exit their positions whenever desired.

Custodial Services for USDY: One potential concern for investors is the absence of custodian services for USDY. Unlike OpenTrade, USDY does not work with Fireblocks or any other custodial wallet systems. In comparison, OpenTrade offers full integration with Fireblocks and can consider adding support for additional custodial wallets upon request.

As a crypto investor, I’ve found that one hurdle in my journey is the integration of Ondo’s rebasing token, rUSDY, into yield products. The reason being, many protocols and exchanges do not offer the necessary support for it yet. For instance, using rUSDY tokens as collateral for a loan isn’t straightforward due to this lack of support.

From my perspective as an analyst, OpenTrade’s unique approach lies in the fact that it doesn’t rebase its tokens. Instead, the V tokens are designed to appreciate daily, aiding investors in monitoring their interest earnings more effectively. This flexibility of V tokens extends to their utility within DeFi protocols and exchange platforms, making them more adaptable and versatile in the decentralized finance landscape.

USDM vs OpenTrade

The USDM product differs significantly from the USDY, but it shares some drawbacks that OpenTrade’s stablecoin services have skillfully avoided by providing yield-on-demand solutions instead.

Eligibility Differences: USDM’s restrictions are less stringent, but it is still restricted in the U.S., U.K., Canada, and 25 other countries. On the other hand, OpenTrade limits its use only to a small number of nations that are not under OFAC sanctions.

USDM Transaction Restrictions: USDM enforces transaction restrictions, permitting a minimum deposit or withdrawal of $100,000 at once, while OpenTrade does not impose any minimum transaction thresholds.

Withdrawals for USDM: Transactions for withdrawing USDM may take up to two days due to the dependency on the protocol’s available liquidity. However, OpenTrade’s feature of instant withdrawals enhances the allure of stablecoin yield-as-a-service for investors seeking quicker access to their funds.

Adherence; While OpenTrade follows strict regulatory guidelines, ensuring its secured lending transactions are compliant with MiCA, USDM falls short in many protective measures and is only registered in Bermuda. Consequently, it fails to instill trust among institutional investors.

Application Scenarios (Use Cases): The practical application of USDM is somewhat restricted due to its compatibility issues with Decentralized Finance (DeFi) platforms, as all operations must adhere to Mountain Protocol’s terms and conditions. Moreover, USDM being a rebasing token adds to this limitation. This stands in stark contrast to OpenTrade, which is engineered to be fully compatible across the entire blockchain spectrum, without any rebasing tokens.

Liquidity: Mountain Protocol doesn’t keep any cash or other stable digital currencies for immediate use, instead using USDC-denominated over-the-counter credit lines to handle redemptions. On the other hand, OpenTrade has sufficient liquidity, as it keeps a blend of reserves and marketable assets in its collateral pool, allowing it to support immediate withdrawals without needing external loan resources.

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 

As a researcher, I’d articulate it as follows: In my exploration, I discovered that OpenTrade’s yield-as-a-service for stablecoins provides fintech companies with an adaptable solution to offer stablecoin returns to their clients, seamlessly integrated into their existing apps and synchronized with their operational systems and back-office processes.

In the rapidly advancing DeFi sector, OpenTrade’s novel, MiCA-aligned stablecoin investment products are laying a solid groundwork for a more regulated and steady environment for stablecoin investors. By resolving the significant shortcomings of current yield-generating stablecoins, it caters to the increasing appetite for appealing, secure, and highly liquid investments in stablecoins.

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2024-12-09 15:17