The battle for profits has begun. How can emerging stablecoins challenge the trillion-dollar profit monopoly of USDT and USDC?

Author: Duo Nine

Compiled by: Tim, PANews

The stablecoin market is changing, and USDT and USDC will not return the profits they generate to users, but will keep them for themselves.

This provides opportunities for other stablecoin competitors.

Take a look at three examples below, with more in the works.

Currently, the stablecoin market share is about 250 billion US dollars, of which USDT accounts for 62% and USDC accounts for 24%. The two together account for 86% of the total stablecoin market value.

What problems do they have?

Neither USDT nor USDC pays any returns to its holders. All US dollar assets used as collateral are invested in US Treasury bonds, which can generate an annualized yield of approximately 4%. All of these returns belong to Tether and Circle, not users.

As you might imagine, Tether becomes the most profitable company in the world in 2024 with over $50 million in profit per employee, and by 2025 that number is close to $60 million. This makes Tether the most profitable bank in existence.

But this is also a clear weakness.

Since the coin holders cannot get any benefits, they will certainly strongly demand the right to control the benefits. This is an excellent entry point for other stablecoins that aim to share benefits with users. The following three cases can prove this point.

1. Resolv, USR — 8.6% annualized return

Resolv has two key products.

• USR: A Stablecoin Fully Backed 1:1 by Bitcoin and Ethereum
• RLP: Resolve Liquidity Pool Token

An annualized rate of return can be generated by hedging positions in Bitcoin and Ethereum as shown below.

USR has 168% collateralized assets as collateral, so the risk is extremely low. Its biggest risk is that it may lose its peg to the US dollar, but this has never happened so far. The average annualized rate of return of 8.65% is twice that of the AAVE platform, and its performance is worth paying attention to.

RLP is a token that accumulates value through yield and drives price up over time. Its yield comes from excess collateral invested in the same market neutral strategy through leverage. RLP has a high risk attribute and the token price may also fall if market conditions are unfavorable.

RLP acts as a buffer and protection layer for USR. RLP depositors take higher risks in exchange for higher returns, while USR users are protected. This design mechanism is fair.

Advantages of USR

• Better yield than AAVE
• Fully backed by BTC and ETH
• High transparency
• Protected by the RLP mechanism in adverse market conditions
• Zero minting and redemption fees
• Support instant staking and unstaking without lock-up period

Disadvantages of USR

• This service is only available on the Ethereum network and may result in higher transaction fees.
• Users must stake USR tokens to obtain benefits

2. Noble Dollar, USDN—4.1% annualized return

Noble Dollar is a product launched by m0. Its core feature is that users can get 4.1% of US Treasury bond income based on the USDN stablecoin they hold every day, without locking or staking. In short, users' wallets will automatically receive additional USDN every day, which is equivalent to free airdrops.

Although USDN has limited usage scenarios at present, it will soon be supported in multi-chain ecosystems such as Ethereum and its second-layer network. Imagine staking USDN in AAVE: users can not only get the default 4% basic income, but also earn an additional 4% to 5% AAVE incentive income.

The potential application scenarios of this digital dollar are endless. If this dollar is successfully implemented in the future, USDT and USDC may be affected.

Advantages of USDN

• Significant returns backed by U.S. Treasuries
• High transparency
• No staking required
• Daily settlement income
• Can be purchased with fiat currency on their website
• ​​Native cross-chain bridge to easily transfer USDC​​

Disadvantages of USDN

• ​​Current application scenarios are limited (will be improved later)​​
• The yield is lower than that of competitors such as Resolv

3. infiniFi, iUSD — 8.5% to 16% annualized return

InfiniFi belongs to the new generation of "stablecoins" that can provide different yields based on user interests and risk preferences. To obtain 1 iUSD, you need to deposit 1 USDC, which will be used to invest in a diversified income strategy.

If users want to withdraw USDC at any time to obtain instant liquidity, the yield will be lower. However, if the iUSD lock-up time is extended, the protocol can adopt more advanced USDC strategies to obtain higher returns. Although the risk increases, the higher yield may compensate for this.

The current interest rate without a lock-in period is about 8.5%. However, if users are willing to lock iUSD for 4 weeks or longer, the yield can be as high as 16.4%.

In general, I don’t recommend locking up your funds for weeks. This is because if something goes wrong, you will be passive. However, for stablecoin investment, this approach itself is reasonable. In a way, it is similar to the model of short-term bank deposits.

The operating mechanism of iUSD is that after users lock iUSD for one to several weeks, they can provide protection for users who keep iUSD liquid (unlocked). If the system is abnormal, users with the highest returns will bear the losses first. This is similar to the model in which Resolv RLP users provide protection for USR holders. Why is this mechanism so important?

Imagine a scenario: everyone holding iUSD wants to withdraw and get their USDC back. But only when the current liquidity is sufficient can those holding liquid iUSD be the first to withdraw.

If liquidity is insufficient (due to a large amount of USDC being locked in various long-term strategies), then iUSD may lose its 1:1 peg with USDC or incur losses. This is because early exit strategies that lock USDC for up to 8 weeks may incur additional costs.

These losses will be borne by users with the longest lock-up period. In principle, this mechanism can maintain the anchor rate of iUSD and protect liquid iUSD holders. However, if the liquidation speed is insufficient, black swan events may still cause iUSD to decouple and fluctuate.

Generally speaking, as long as InfiniFi does not hold a large amount of USDC or suffer significant losses in its strategy, this type of risk is low. However, if the DeFi protocol (such as Ethena) used in its long-term strategy is breached or drained of funds, the risk will erupt. At that time, iUSD users who use the lock-up mechanism will suffer heavy losses and may even lose their principal.

Advantages of iUSD

• Super high yield
• High transparency
• The lowest yield tier can also have instant liquidity
• High yields provide a bottom line for low yields
• Suitable for groups with different risk preferences

Disadvantages of iUSD

• This is not a real stablecoin, but a receipt for a USDC deposit
• The risk of insufficient liquidity, i.e. not enough USDC to satisfy redemption requests
• Once liquidity dries up, iUSD may "break away from its anchor"
• High-risk strategies may result in returns that fall short of expectations or even capital losses
• The product is tied to the underlying risk of all DeFi platforms used to generate yield

When investing in such new protocols, I recommend testing with a small amount of money first, and be sure to wait until the bear market is over before investing large amounts of money. Such new protocols must undergo stress testing before they can be market validated. Taking InfiniFi as an example, their protocol operation model is more like a hedge fund that absorbs user funds for investment.

On the other hand, it is crucial to pay attention to the development of this new track. Various protocol combinations can not only provide diversified choices, but also allow users with different risk tolerance to achieve designated profit goals at their own comfortable risk level through a combination of strategies.