Yield-ing with Stablecoins

Stablecoins, otherwise known as stable currencies and yields don’t usually go together in the same sentence.

Why should they?!

Stablecoins are non-volatile assets, so how can you earn (i.e. yields/interests) from them when their prices can’t significantly fluctuate like non-stable assets such as Bitcoin, Ether, Solana, Aave, etc? It is like saying you could earn a sizeable interest for holding your USDollar in your wallet (or bank account) when it is not a stock, t-bill, or bond.

But yeah, stablecoins can earn yields, and they are already earning yields on Reserve!!

I already did an earlier post on Reserve, so I won’t bore you with another long epistle. Long and short of the story is: Reserve allows you to create asset-backed stable currencies (called RTokens) that are resistant to inflation. If you want to know more, you’d better go and read that earlier blog post, haha.

How stablecoins earn yields on Reserve

Currently, 3 major stable currencies (i.e. RTokens) are deployed on Reserve, all maintaining a 1:1 peg with USD except ETH+, which targets Ether (LST). If you look at the assets backing these stable currencies, they range from stablecoins like USDC, DAI and volatile assets like ETH and their various yield-bearing derivative versions such as fUSD, fDAI, rETH, wstETH utilizing Aave, Compound, Flux.

Basically, the assets backing these stable currencies bear yields (i.e. interest). The interests come from lending, staking, providing liquidity, and yield-farming these underlying assets on Aave, Compound, Flux, Convex and other DeFi protocols, and the interests earned are then distributed to holders of the stable currency. More like the $USDollar in your wallet (or bank account), the bank puts it into stocks, T-bills, and bonds — and instead of keeping the money they make from it to themselves (as they mostly do), they share them with you!

Why should anyone want to hold these stable-currencies

The reason mentioned above is enough for me (and most people), which is being able to earn interest from just holding my stablecoin. But the stablecoins deployed on Reserve have that and some more;

• Stability: These stable assets offer stability to their holders due to their 1:1 peg to an underlying asset, and being backed 1:1 by a diversified basket of yield-bearing trusted stable currency cUSDC, aUSDT, rETH… gives it buffer to maintain peg in the case of a slight de-peg.
• Yield Earnings: The users of these stable currencies can earn passive income on their capital by simply holding the stablecoin in their wallet, and this is possible due to the diversified basket of yield-bearing assets (tokens) that back them.
• RSR Backing: These stable currencies are over-collateralized and backed by RSR tokens which in the event of a de-peg will be sold off to cover for losses suffered in the basket of underlying assets backing the RTokens.
• Governance is provided by the community (RSR stakers) in a fully decentralized manner. RSR stakers are active participants and are rewarded proportionally for their input to the specific RToken through a % share of the interests earned. This ensures there is an aligned incentive for them as governance voters to vote in the best interest of the RToken, and to actively protect it from any malicious proposals. Essentially, everyone has skin in the game and is interested in the good, and success of the asset.
• Possibility of better value: There is the possibility of holding a better-valued asset if the rewards for holding the stable currency (ETH+) become significantly higher than the underlying assets (ETH: rETH, wstETH), then it is more attractive for users to hold the RToken over those underlying assets directly.
• Defi Exposure to the underlying asset: Holders gain exposure to Defi through the underlying basket of assets. Imagine buying an asset like ETH+ and you are automatically exposed to all ETH staking protocols, while at the same time being protected against anything that could likely go wrong (i.e. smart contract risk, de-pegs) through the protection offered by RSR stakers. It’s a win-win scenario!

By now, I can probably guess what’s going on in your mind!

How can I also be part of this, how can I lay my hands on these RTokens?

Well, all you have to do is go on Curve and pick any of the RTokens of your choice, the one you most align with (or you can go with all of them), buy and just hold them in your wallet. And if you want to earn some more, you can stake them, or go provide liquidity on Beefy, Convex, and Yearn and watch them auto-compound.

This is a snapshot of the yields by various RTokens in the past week, which is an increase from what they did the previous week.

I have my picks, and I may be doing a deep dive into them in my next set of posts.

So instead of safely hodling your USDC, USDT, or any other stablecoin, you are better off holding a stablecoin that can continually earn you a yield, having both the stability of a stablecoin and the interest-earning power of a non-stable asset. You are better off with a stable currency on RESERVE!!