To unseat Tether, upstart stablecoins are sharing the wealth

Newcomers are using T-Bill interest to generate yield

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DIAMOND VISUALS/Shutterstock modified by Blockworks

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Google “new stablecoin” every week or so, and the odds are pretty good you’ll see another one emerging from stealth. 

Tether currently dominates stablecoin trading, but potentially clawing away some of its business could be quite lucrative. The USDT creator reported nearly $1 billion per month in profit in the last quarter of 2023.  

A large part of Tether’s appeal for traders is its liquidity. There are over 100 billion USDT in existence, which represent over 70% of all stablecoins, according to DeFiLlama. But a new crop of upstart stables are hoping to beat Tether on a different point — yield. 

Read more: Tether made nearly $1B in monthly profit during Q4

Tether’s revenue comes in large part from its investment in US Treasurys, the company has said. To try upstaging Tether, which does not natively offer yield, some stablecoin projects are paying out the yield earned by Treasury investments. 

This strategy is partly inspired by the impressive returns earned by MakerDAO, said Pablo Veyrat, CEO of stablecoin developer Angle Labs. Maker offers its own version of a yield-bearing stablecoin. 

Users who deposit DAI stablecoins into Maker’s DAI savings rate (DSR) contract can receive a yield-bearing token called sDAI. SDAI was a particularly attractive DeFi investment during the bear market and high interest rate environment of 2023. 

Ondo Finance followed this playbook with USDY, a “tokenized note” that offers yield on US Treasurys. Since its launch in August 2023, USDY has grown to roughly $95 million in market capitalization, though it is not available in the US. 

There are several other examples of this strategy to share T-Bill yield. A dashboard from DAO consulting firm Steakhouse lists ten “securities tokens” — most of which launched in mid-to-late 2023. 

Some of the newer stablecoin projects are pushing the envelope further. Ethena went to mainnet in late February with USDe — which it calls a synthetic dollar. USDe maintains its peg through a cash-and-carry trade, where it balances its staked ether deposits with corresponding short positions on perpetual futures to keep the token’s backing constant. 

Read more: Stablecoins need to focus on liquidity, not decentralization — Ethena Labs founder

Ethena also offers a locked and yield-generating version of USDe, called sUSDe. SUSDe’s yield comes from staked ETH rewards and the fee paid to short positions by those with long positions — called the funding rate.

Ethena’s website says the trailing one-week daily average yield on its token has been 60.9%. Some have questioned sUSDe’s scalability if crypto markets turn less bullish and the funding rate dips. The new stablecoin has still already garnered $1.2 billion in total value locked (TVL), per its website. 

“With Ethena, we are finally seeing some innovation in the stablecoin space after a long lull post-Terra collapse,” Clara Medalie, the director of research at Kaiko, told Blockworks in an email. “However, when it comes to actual usage, Tether is still dominant.”


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