The Rise of Yield-Bearing Stablecoins (Gerrit Hall)

thank you all for making it to stable Summit I'm proud to be representing curve finance and I really hope for all of your Stakes that you've been early to the yield bearing stable coin Trend because the markets have not been very good for crypto for the past few weeks um that's okay though and crypto were resilient and we're all going to like double down and make it all back with one narrative because that's what we want right we want a narrative that's going to send all of our bags we don't just need a green candle we need the super cycle and since I know there's a lot of VCS here around e Denver I've gone ahead and brainstormed a few stable coin narratives you could pitch that attached to the hottest Trends um you know curve doesn't do much with VC so you're free to take these ideas now I don't think that stable coins should be chasing the hottest Trends I think they should be boring and stable but your mileage may vary so the first concept I had was that AI of course is hot so why don't we have a stable coin where the peg mechanism is hooked up to an llm makes sense right well I tried it and your mileage may vary uh you know I asked what's the peg a dollar what's the peg a dollar what's the peg $2 you know they're not very good at math they like to hallucinate what's the peg she's your aunt okay so that one's probably not going to work um but you know AI is hot so you try it I keep waking up and seeing that doge is in the news and I'm a boomer so I remember when that was more of a coin but it's now like about government efficiency so I thought okay here's a pretty good pitch why don't we have a stable coin backed by bullet points just think millions of bureaucrats typing out bullet points every week like the clatter on that keyboard the kinetic energy alone could probably power a mining rig so maybe just maybe we could actually have a doge USD now I shop this to Legal they said pitching bullets flying around DC might get me a visit from Secret Service so I'm not willing to touch that but by all means if you like go for it all right last idea here this man is Brian Johnson he's on a mission to become the world's oldest man now if anyone here is familiar with protocol F ofx they came up with a pretty ingenious stable coin design where they would cleave volatile assets into a stable coin and Hyper leveraged pair a lot of crypto people into longevity Mr Brian Johnson is trying to get his uh Fitness age to be stable and trying to leverage trade his biological age to you know make 200 300 years so what we need is we need a Brian Johnson USD maybe like we can keep his Fitness AG constant like a stable coin and have that backing I don't know again a lot of VC is here trying to hop narratives but I'm actually not convinced that we need new narratives I really think that the yield bearing stable coin narrative is actually good enough I've been following stable coins for quite a long time and every single major stable coin protocol I've been following has pretty much announced plans to or released a yield bearing stable coin in the past six months to a year so I'm pretty convinced that The Narrative of yield bearing stable coins is a pretty good one and the rise of yield bearing stable coins actually changes in some level a lot of the metrics that we're looking at so we'll take it back to First principles this is a treasury bill now a lot of the cipher Punk origins of cryptocurrency was trying to build a completely alternate separate Financial system and arguably that hasn't worked out so well because every time the FED like sneezes Bitcoin seems to catch a cold and it's very reductive but I would argue that the Advent of defi summer back in 2020 was largely just a reaction to treasury rates back then yields were around 0% so when people in crypto were offering anything above 0% even though the ux UI was 10x worse than it is now billions of dollars were streaming in because yield was such a novelty now five years is a long time nowadays since then rates have obviously been hiked they Peak just a little bit ago and now yield is not like this crazy idea if you're not giving yield like no one is going to leave their stable coin or any token with you yield is just the Baseline expectation nowadays in 2025 and accordingly even though defi got a lot more Innovative and a lot better it's still struggled t- bills like are pretty interesting I was talking with my colleague rex on a leviathan live stream a few weeks ago and he was asking why can't I just go into Starbucks and pay with t bills and as funny as it is to imagine like whipping out a w of T bills and asking them to convert it like it's actually not the worst idea you could build an app and you could have the app immediately trade the T bills at point of purchase and come to think of it that's a way better idea than Doge USD so if you're going to pitch anything to VC you should probably pitch that one um but that being said like it's kind of makes sense and it got me thinking like why do we have these complicated mechanisms like auctions for T bills like why doesn't the government just give everyone 5% yield now I'm usually the slowest horse to the race so I realized oh okay the reason that you can't give everyone 5% yield is because then you give nobody 5% yield right like all you're doing is inflating everyone equally so playing field stays the same in essence T bills as well as like inflation and taxes are just tools that the government can use to compel policy if everyone gets it or nobody gets it is no effect the value comes in the inequality the value comes in being able to compel people and nudge them in certain directions by using these as incentives and this is where the rise of yii bearing stable coins is very amazing to me because stable coins are amazing businesses as many protocols have found out and as a result we're seeing that they have amazing profits amazing revenues and they can redirect this yield within their protocols however they find it most strategic now of course this is a curv talk so there's going to be some math but don't worry I'm going to keep it light let's talk a bit about some of the metrics that have traditionally been used to evaluate stable coins and some of the new metrics that have emerged because of the rise of yield bearing stable coins now I say that like the there's going to be math one of the nice things about stable coins is often times it makes the math a lot simpler that's not always the case in some cases like the stable swap invariant is way more complicated than x * yals K but if you look at the basic laws of Economics price being a function of supply and demand like when you look at the Bitcoin case obviously this one is a bit more complex because you know how much bitcoin's on exchanges the function of supply how much being minted the demand is the ever manic moods of Bitcoin Traders uh as a result result the price is super volatile with stable coins you get to hold the price to a dollar if you're lucky and as a result the equation reduces nicely supply and demand are directly correlated in other words if there's a million dollars more demand for your stable coin that directly manifests in most cases as a million dollars of Supply being minted Supply equals demand equals tvl this is a case for stable coin math is nice and easy another one of these correlations that I've seen over time which I think is a bit less understood in some cases in crypto and defi is apy apy is pretty much just a function of risk if you stumble across like a liquidity pool or a stable coin that's offering 10,000% apy like that's not a deal that's a warning sign to stay away from that pool in most cases and yet people are still like obsessed with higher and highest apy and realistically if you actually look at the Mechanics for yield bearing stable coins it's kind of difficult to manipulate the apy this is really just a function of market demand and risk the way that most yield bearing stable coins work is they point a fire hose of Revenue and dare you toit the stable coin at the start yes everyone wants to do it because they think that's pretty good but as more and more of that yield starts getting siphoned off there comes a point where no one's willing to kind of take the incremental risk and continue minting the stable coin and you arrive at essentially the risk-free rate you can see published here is some top stable coins in the decentralized world and the latest risk-free rates that they I wouldn't say risk-free because nothing's risk-free in defi but you know generally like 5 to 12% is considered a pretty normal rate that you would get uh within cryptocurrency usually you have to accept a little bit more risk than the treasury bill rates but that's because we have Smart contract risks and hacks and all the other clown circus events that happen in defy if you want to push your apy higher you can't just aim more Revenue at your stable coin because the Market's going to equilibrate back to that risk-free rate so it'll shoot up initially but then it's going to kind of drop as more people have demand for the stable coin AKA more Supply AKA more tvl and you just get back to the same point you can have too little uh yield directed in which case you're going to be under the market rate and that'll cause a death spiral but in most cases like you if you really want to push up the apy as a protocol founder the only thing you can do is Hop on to X and announce that your protocol has been hacked or you're going to rug them and drain all the funds and you're going to see your apy shoot up to like 10,000% as people run to the exits but that's probably not what you're looking for you can't really influence apy that directly except by doing the things good protocol should do like you should be announcing smart contract audits you should be trying to build a reputation and build trust and unfortunately that's going to cause your apy to jump down lower and lower but I do think if apy is a proxy for risk and TBL and supply and demander proxies there is a new metric that the Rises stable coin uh yield bearing stable coins introduces which is just what percent of the stable coin is kind of getting this yield and we'll go through each of these as examples and what's interesting about this metric is it's not necessarily possible to use it to compare across stable coins because they all have different mechanics they all have different strategies and incentives but you can use it as a sort of Health marker for any protocol over time so the protocol I'm most familiar with of course is curve sponsor of this event um at the moment curve sees about 25% of curve USD as savings curve USD so if you're not familiar with the mechanics curve USD is a very interesting lending based um stable coin they keep we keep the peg via a uh changing the borrow rates so if the coin dips below Peg the borrow rates shoot up if the go coin goes above Peg then the borrow rates shoot down this has been fantastic to keeping the peg but it's also been a rough user experience because the r can fluctuate wildly and it inhibits scaling we've been working to to try and scale curve USD savings curve USD was a perfect solution it's not always the case for every protocol but for the case of curve it created a virtuous cycle the existence of savings curb USD and siphoning revenue towards the stable coin meant that if the borrow rates go up more curve gets locked as savings curve USD the peg restores the bar rates come down and since this has come out this has been a fantastic tool and curves uh toolkit to be able to convert uh to be able to stabilize uh stabilize the borrow rates and help scale curve USD how does this compare with other protocols so fra is another interesting use case because fra has a variety of different ways that they can and do earn revenues so they don't just need to point lending revenues towards their um Sr USD they've got a lot of tools and they've got a lot of different strategic objectives so it might not be the case that they necessarily want to direct all the revenue towards it but they're trying to launch their L2 fractal so maybe they want to give some bonus yield on their L2 um inverse Finance had the savings dollar for a long time it's also a lending protocol but instead of a variable interest rate like curve USD it is a fixed interest rate and when they introduced the concept of savings dollar were they just being like altruistic and generous and saying they wanted to give some revenues back like maybe it's possible but more likely it's because it Shores up the protocol's capital efficiency and also creates a virtuous cycle and it's it's been a fantastic tool in the S dollar and/ inverse Finance universe so these are some of the like lending based protocols um what's the sort of high-end like you've seen they've all kind of fluctuated from about 10 to 25% um real quick uh let's talk about d as a really good example of seeing this in action because D is being phased out towards SDS so you're seeing that within the D ecosystem there is you know 15% % of people still an S die but most of the die on the ecosystem is kind of like locked up in Zombie liquidity because the incentives and everything they're trying to do is to push people towards ssds so all the stakers have already left for this they're already up to about 32% of the usds supply at 32% but even this is not the largest the largest is Athena uh which Athena's at 55% and if you look at the history of Athena and bringing the carry trade online on chain they had an incredible amount of interest because there was a very brief window when everyone was bullish and everyone was actually like trying to uh trying to do um the staked usde which was at the time delivering like very high double- digit yields and it was looking pretty good um because that's their use case you can see that they're in the high- end we don't know if this is going to come down or not but potentially I'd imagine more applications for usde come out and we start to see that diminish um just a quick shout out though because the Undisputed champion this is tether tether gives away no yield they literally have no ssdt and why would they there's 150 billion tether out there to put it in perspective this is how tether's market cap Stacks up against everyone else so all of us who are eventually going to grow to the size and compete with tether we got a problem because if they're not giving away any of their yield if they're keeping it all for themselves making them one of the most profitable companies on the planet that means they're going to have an incredible War chest that you're all going to have to fight against so maybe you should just go back and try the Doge USD a uh quick shout out uh curve is sponsoring us uh we want to talk to everyone about everything but in particular if you know l2s that are interested in curve light we have this um there's a free toolkit that you can use to deploy yourself it's pretty easy you don't have to be a developer you can do it um but if you want to talk with us about deployment about getting it on the curve UI we'd be more than happy to talk about it thank you everybody [Applause]