[Strategy Paper] Stablecoin Return Summary

By Serenity Fund | The Serenity Fund | 4 Dec 2020

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This paper summarises what kind of earning an investors can look at, if he just holds stablecoins, or something close to stablecoin by design. The data we use here are on different hours of 2 Dec 2020.

1) Compound / AAVE / dYdX (3%-5%)

The easiest way is just to deposit into Compound or AAVE. The rates are about single-digit percent APY. https://loanscan.io/ gives a summary of the rates

2) Curve / Yearn (10%-20%)

Curve has better rates than depositing platforms. Curve has two types of pools, lending pools and non-lending pools. For lending pools, investors put stablecoins into the pool, and Curve deposits them into Compound/AAVE/dYdX. Curve does so directly by working with these platforms like Compound; or via Yearn, e.g. Y-Pool of Curve. So lending pools of Curve still gets the supply-side yield from Compound/AAVE/dYdX. Non-lending pools do not have this feature.

Both lending and non-lending pools provide swap functions, e.g. swapping DAI to USDC, for a fee. So when investors deposit into these pools, they also earn a trade commission, about 1%-2% a year currently.

On top of these, Curve provides Mining Rewards in CRV, its platform token, to all pools. The allocation is liquidity-weighted, but subject to weekly governance vote adjustments. Some pools have rewards from partnering platforms as well. https://www.curve.fi/ Curve’s homepage gives final calculated APYs for all pools.

It’s worth note that you can increase your CRV rewards for your pool by staking CRV for a few months to up to 4 years. We do not elaborate here. Based on our calculation, the average returns of the major pools are:

Yearn serves two purposes in this process: 1) manage the Curve pools by investing the stablecoins into Compound/AAVE/dYdx based on the rates in the market; 2) collect the CRV tokens, stake a portion of them (10%) for yield improving and sell the rest for yield. We will explain about Yearn’s business model in future articles. Yearn’s rates are close to the Curve rates with everything added together.

3) Cream (5% to 15%)

Cream is a fork of Compound. It works essentially the same as Compound except for that it accepts more tokens for lending/borrowing. As such its average lending and borrowing rates are higher than Compound.

4) Other Stablecoins (a wide range)

There are quite a number of stablecoins today, and some of them offer saving features on the platform. We do not list all of them and you should not invest in a stablecoin because it’s pegged to USD. Each stablecoin has a different way of pegging and this gives rise to risks sometimes.

For instance, mStable’s mUSD, gives a return in the low teens.

5) Hedged Futures in Centralised Exchange (8% to 10%)

We have published an article on how to earn carry (funding fees), if you do not want to be exposed to market volatility. This is essentially buying a token and short its futures in an exchange like Binance’s coin-futures (where the same token is used as collateral). Please refer to the below link and we do not elaborate futher.

https://serenityfund.medium.com/strategy-paper-hedged-futures-in-cex-387343e3b5a5

6) Uniswap’s Stablecoins Pair (2% to 20%)

You can put two stablecoins as a trading pair into Uniswap, and earning a fee as liquidity provider. Uniswap’s USDC-USDT pair is actually quite popular, despite that you can trade the pair for much lower commission rate on Curve. The volume comes from indirect trades, e.g. if you wish to trade token X to USDT, but there’s no sizable TokenX-USDT pool, and there’s a TokenX-USDC pool. So when you trade, Uniswap swaps TokenX to USDC and then swaps USDC to USDT. Well it happens.

Arguably the same pair can be found on Balancer. But Balancer discourages such pools by reducing the rewards for such pools, so there’s only Uniswap.

7) Crypto Platforms (2%-8%)

Centralised crypto platforms like BlockFi, Binance, or Poloniex provides fixed investment products that give your stablecoin a fixed return over a period of time. There are quite a number of them and we do not elaborate here.