State of Stablecoin Defi Yield: September 2024

Stablecoins are POPPING right now. Total supply according to Artemis right now:

$163 BILLION

If you’ve attended any major crypto conferences lately — even though I wasn’t at Token2049, I heard and read about it — stablecoins were the hot topic. From Consensus in Austin to previous events like Permissionless II, stablecoins have remained front and center in the conversation. And for good reason.

According to Artemis (checkout their new stablecoin dashboard), the monthly transfers for stablecoins across all chains have skyrocketed to 458 million, driven by various use cases across DeFi, payments, and remittances. As of Tuesday, October 1, 2024, the total circulating supply of stablecoins surpassed $163 billion, with nearly 23 million monthly active addresses leveraging these assets. This scale is unprecedented, and stablecoins continue to solidify their place as foundational tools for accessing global liquidity.

Stablecoins have firmly established themselves not only across all of DeFi but also in the day-to-day lives of millions. For me, I’m constantly thinking about two things: First, how can I better integrate stablecoins into my everyday financial routine?

And second, if I’m holding stablecoins, how can I maximize my yield? Sure, I could park them in an FDIC-insured bank account and earn a respectable 4-5% interest, but there’s a part of me that’s drawn to exploring more innovative avenues. Being in DeFi and crypto, I enjoy pushing the envelope, experimenting with new platforms, and staying on the cutting edge of financial products — that’s where the real excitement is.

Risk and Reward: Chasing Yield Beyond High-Interest Savings

We all love chasing those 50x to 100x meme coin pumps. But for me, there’s something inherently attractive about seeking consistent stablecoin yields — yields that range from 10% to 20%.

Compare that to the 4-5% rates you’d get from a high-yield savings account, and you can see why stablecoins in DeFi are so compelling. You’re still primarily holding USD (or its equivalent), but the return can be two, three, or even four times higher.

But with that comes risk, and it’s important to lay it all out.

First, there’s the counterparty risk — trusting the stablecoin issuer to back their token 1:1 with USD or equivalent reserves. Then there’s the looming threat of de-pegging. Imagine a bank run, where you fear going to withdraw your money and not being able to get every dollar back. In the stablecoin world, that’s what de-pegging looks like: when the token you’re holding is no longer worth exactly $1, forcing you to take a loss, or worst-case scenario, not being able to cash out at all.

And that’s not all. You’ve also got third-party risks when interacting with DeFi protocols. Whether it’s platform vulnerability or a bad actor exploiting smart contracts, there’s always the chance that something goes wrong. None of this is financial advice, of course — just the reality of what I’ve seen in the market, and why I’m so drawn to the opportunities in DeFi yield.

Yet, despite these risks, there’s a strong, growing narrative around people worldwide holding stablecoins as a way to hold USD, especially when traditional access to the dollar has been limited or non-existent. If you’re earning 5%, 10%, or even 15% on stablecoins, that might seem like a small bump in the U.S. where we can access high-yield savings accounts easily. But for someone in a developing market, the ability to hold dollars and earn a yield on them can be life-changing.

Where DeFi Stablecoin Yields Stand Today

That’s what I want to dig into. Where are DeFi stablecoin yields today? Are they really better than a high-yield savings account? How does the risk stack up, and what platforms or chains are offering the most attractive yields? I’ll be breaking this down by looking at some of the top chains, because if we’re aiming to minimize risk, staying where the majority of liquidity is concentrated is key. Sure, there are always new chains popping up, incentivizing users with unsustainable, high yields — but my goal is to stay aware of these while primarily focusing on more established ecosystems.

For me, personally, Sui has been my go-to. I’ve spent the past six to eight months studying stablecoin yields on this chain, and they’ve consistently stayed where I like them. Sure, there are always opportunities to explore new platforms or bridge to new chains, but each time you move, you’re introducing more risk — which is why I’ve stuck with what’s worked for me.

What I’m Looking for in DeFi Yield Protocols

As I explore the current DeFi stablecoin landscape, one of the biggest factors I’m paying attention to is user experience. Let’s be honest — some of these DeFi protocols don’t make it easy for users to engage with them. For many, the process involves multiple steps to simply deposit into a liquidity pool, and it’s often unclear where to find the best opportunities or how to understand where the yield is actually coming from.

If I were someone just a month into crypto, there’s a good chance I’d look at this complexity, close my laptop, and walk away. Compared to the simplicity of depositing funds into a traditional bank account, there’s much less hand-holding in DeFi — and that’s a major hurdle if we want to onboard people globally.

So, when I’m evaluating DeFi protocols, here’s what I’m looking for:

• Simplicity of Use: Is the interface intuitive? Can I easily find which pools to deposit in without hunting through endless menus?

• Transparency: Is it clear where the yield is coming from? Some protocols do a great job here, while others fall short, leaving users guessing about the actual source of returns.

• Abstracting DeFi Layers: I’m excited to see the wave of projects that are beginning to abstract away the complexities of DeFi, making it as simple as possible for users to access yields without losing the ability to self-custody their funds. These are the projects pushing the space forward, reaching meaningful adoption numbers (moving beyond just a few hundred users and edging towards five figures).

Ultimately, for DeFi to grow, it needs to replicate the ease of use people expect from traditional financial services. I believe we’re starting to see a shift toward that direction, with more user-friendly interfaces and protocols emerging. These are the factors I keep in mind when deciding which platforms to dive into — and I’ll share one of those exciting new protocols later in this piece.

So that being said, let’s take at a few chains and protocols. Get ready, because there is a ton of info here.

I won’t be diving too deep into any one protocol, and there are some I HIGHLY recommend you research more before depositing funds. Links are included throughout the doc for you to DO YOUR OWN RESEARCH 😀 

Lets dive in!

Ethereum Mainnet

First, the OG. Admittedly I avoid ETH mainnet like the plague. It’s been months, if not years since I checked where rates were at across these blue chip defi profocols. Despite that, ETH mainnet is still the hub for liquidity and dominating as far as TVL goals. Let’s take a look at what yields are out there.

Aave

Aave is one of the OG’s and leaders in decentralized borrowing and lending markets, with stablecoin yields driven by borrowing demand. Their code has been forked dozen of times for borrowing and lending protocols that are hubs for liquidity across various chain. Here’s a quick snapshot of the current yields as of late September 2024:

• DAI (Maker Protocol): 3.86% APY

• LUSD (Liquity Protocol): 3.40% APY

• Curve.Fi USD (Curve Protocol): 3.98% APY

• Tether (USDT): 3.69% APY

• USDC: 4.54% APY

Now, as you can see, these yields aren’t exactly earth-shattering. With high-yield savings accounts offering rates in a similar range, I personally don’t see much of a reason to take on DeFi risk for such minimal returns. These are insured options offering comparable rates with far less friction, especially when you consider that Aave’s rates involve smart contract risk and exposure to potential de-pegging.