After the U.S. GENIUS Stablecoin Act took effect, the provisions prohibit stablecoin issuers from directly paying interest to holders. Traditional finance believed that yield stablecoins had a bleak future. However, in just three months, Ethena's USDe and Sky's USDS supply surged by 70% and 23% respectively, totaling $14.3 billion, reflecting an arbitrage market created by "policy loopholes".
Policy Impact on Yield Stablecoins' Counterattack
Cointelegraph's October 3, 2023 report points out that USDe's market value has risen to $9.49 billion, and USDS has also increased to $4.81 billion. CryptoQuant Research Director Julio Moreno analyzes that investors are moving funds into "native yield" products to avoid the ban. Artemis co-founder Anthony Yim even exclaimed on the X platform:
"The winners in the post-GENIUS era are actually yield stablecoins."
USDe: Funding Rate, Circular Arbitrage
USDe, issued by Ethena, is a "synthetic dollar stablecoin" that maintains yield through funding rate arbitrage. Ethena collects ETH or BTC as collateral and simultaneously opens a short position in the perpetual futures market, forming a price-neutral position. The funding rate continuously paid by long positions is the source of income. In a bull market, a positive funding rate can provide an annualized return in the double digits.
Additionally, users can convert USDe to the staking version sUSDe, collateralize it on Aave to lend other stablecoins, and then buy yield tokens on Pendle Finance, completing a "circular leverage".
The process also earns Ethena point rewards, amplifying overall returns. However, on-chain leverage increases liquidation risk. If the underlying assets experience severe volatility or liquidity dries up (simply put, when market conditions turn bad), this nested strategy could quickly turn into a loss.
USDS: Over-Collateralization, Staking Yield
USDS, issued by MakerDAO (Sky), adopts an over-collateralization model. Before minting, more valuable crypto assets must be locked in, and governance guides arbitrageurs to adjust prices in the secondary market. Yields come from staking and liquidity mining of collateral assets, not direct interest payments, thus avoiding the law's restrictions. Currently, the protocol retains "upgradability features" and a "freezing mechanism" to handle potential future regulatory blockades.
Currently, sUSDe's annual yield is 11%, and sUSDS is 4.75%. In an environment with 2.7% U.S. inflation, both provide positive real returns, becoming a sweet new channel for fund hedging.
Future Risks
USDe's high leverage and smart contract complexity, and USDS's dependence on DeFi market conditions, could amplify systemic risks during stricter regulation or market reversals. As traditional financial asset tokenization accelerates, the market landscape may change again if regulated yield products are introduced in the future.
The GENIUS Stablecoin Act intended to tighten the market but unexpectedly gave birth to two arbitrage paths for USDe and USDS. They use funding rates, staking yields, and governance arbitrage to transform direct interest payments into "native protocol returns". Of course, this is a blockchain strategy. In the future, when large issuers enter the market, what "legal circumvention" stablecoin mechanisms will share profits with users remains to be seen.
