The Best DeFi Stablecoin Yield: Maximizing Profits in 2024

Storm Trade on The Open Network offers an exorbitant 58.37% base APY on single-sided USDT pool investments. With a massive TVL of over $10.4 million, it is a lucrative option for any investor. Compare this number to the US treasury bond yield in 2024 which is 4.11%. The average savings account in the US is close to 0.5%. The difference is simply staggering.

Many newcomers wonder how some protocols can give such high interest rates. The answer is fierce competition between DeFi platforms caused by the desperate demand for liquidity. Decentralized exchanges and lending projects need operational funds to keep the lights on. To attract capital holders, DEXes are paying competitive rates on stablecoins which are higher compared to the yields you can get from the US and Canadian banks.

Since the vast majority of cryptocurrencies are pegged to the US dollar, many residents of the EU, SEA, and MENA regions may find better deals in their local fiat. For instance, the ECB’s interest rate is 3.75% with some member state banks offering 4.25% APY in 2024. This is comparable to rates in the biggest pools with Aave paying 4.18% on USDC and 4.2% on USDT.

What is a DeFi stablecoin yield?

In the last five years, the importance of stablecoins pegged to fiat references has become apparent. Speculating retail traders find it easier to work with crypto assets comparable in price with fiat like the US dollar or euro. The DeFi ecosystem has many popular solutions in this field. Among USD-pegged coins, DAI, USDT, USDC, and BUSD are some of the most important. End users and projects like using them as main exchange mediums.

Yields in the biggest pools are also comparable with HY accounts in traditional banks. In some cases, you can find a good deal from an emerging protocol that wants to quickly secure liquidity. A great example is a GHO pool on Aave. It was launched in July 2023. The protocol wants to encourage the use of their native stablecoin and pays a 28.03% base APY reaching a 47.53% 30-day average in May 2024.

Interest rates on USD-pegged digital assets may differ drastically depending on market conditions, utilization, and other factors. Due to this diversity of choices, picking the most profitable stablecoin staking strategy can be challenging even for experienced investors with a good understanding of the DeFi ecosystem and its dynamics. Another important aspect is the variety of available financial instruments since coins can be pegged to a variety of different valuables like commodities. On the other hand, such tokens rarely become popular enough to be included in single-sided or two-sided pools.

A yield on a stablecoin is an interest rate that a DeFi protocol, usually focused on lending or exchanging assets, is willing to pay to investors who provide liquidity.

There are many reasons why the decentralized finance ecosystem uses these digital assets:

• Price stability is achieved through the use of backing funds that ensure a consistent exchange rate between a coin and its reference. Coinmarketcap is tracking all sorts of tokens and reports on their volatility. In 2023, the metric for Bitcoin was 3.5% on average while Tether (USDT) managed to stay very close to its reference with volatility never exceeding 0.01%.
• Cheaper transactions. International remittances in stablecoins cost fractions of prices charged by centralized institutions. For example, the World Bank’s research into the industry of cross-border payments revealed that sending money costs 6.3% on average. The vast majority of stablecoin fees stay way below 1%. If you use something like Stellar, you will cut transaction costs to $0.00001.
• A great hedging instrument. Many retail traders are interested in using USD-pegged stablecoins to protect their portfolios from exposure to high volatility. Tether is one of the biggest exchange mediums involved with the largest share of more than 80% of all trading volume in the market.
• Transparency is a big deal when it comes to digital assets. Investors are more likely to work with coins that are regularly audited. It is relatively easy to show that a stablecoin is backed by sufficient resources. USD Coin conducts external audits regularly to demonstrate its stability. It means that end users have more confidence.
• Integrations with DeFi. The programmability of these digital assets allows all sorts of projects to utilize them in various types of automated transactions like lending, borrowing, or integrating into smart contract designs. As of the time of writing, close to 60% of all Dapps rely on stablecoins for liquidity.

The advantages lead to the overwhelming dominance of these digital assets in the DeFi ecosystem. With such a widespread presence, they also produce a rich variety of investment opportunities for contemporary investors seeking new ways to allocate capital efficiently. With 147 tracked pools with DAI, USDT, USDC, and TVL over $10 million on DeFiLama alone, making a good choice is a tall task.

Stablecoin DeFi platforms

The modern landscape of the ecosystem is not as massive as one would think. Only several hugely popular stablecoins are relevant in the market to a degree where we can seriously discuss long-term investments in them. For example, GHO by Aave is only one year old making it a highly risky asset with appropriately high potential returns.

Here are the most important platforms:

1. MakerDAO is often cited as the most reliable and consistent project with an active decentralized autonomous organization making all important decisions. DAI can be staked directly using the DSR (DAI savings rate) system in the protocol for 6% base APY with the added benefit of receiving sDAI in exchange for locked-in tokens. The latter can be used on other platforms as collateral to borrow other assets like USDC on Ajna. DAI is also used by other protocols. sDAI for staking pays 8.88% base APY, Compound — 2.15%, and Spark — 6.48%.
2. USD Coin is issued by Circle, a privately held company. It is a centralized entity that conducts regular audits and focuses on transparency although some critics point out that real amounts of reserved assets are not disclosed. In 2024, the coin overtook Tether in terms of trading volume as reported by Visa. The coin is offered in 93 tracked two-sided and single-sided pools with yields ranging from 0.02% on Curve (four-sided pool) to 98.79% on Aerodrome (mixed APY).
3. Tether is one of the oldest cryptocurrencies pegged to a reference. It was launched in 2014. USDT was the most dominant force in the DeFi ecosystem for the last decade but was overtaken in trading volume by USDC in the first quarter of 2024. Tether is also a privately held company that claims to have $6.4 billion as excess reserves with a record $1.3 billion in profits secured in Q1 2024. USDT is featured in 43 tracked pools with APYs ranging from 0.01% base on Curve to 57.98% on Storm Trade.

These are the biggest platforms in the ecosystem. Other honorable mentions include Binance USD, TrueUSD, and GHO. However, due to either high risks associated with them or limited use (BUSD is only available in a handful of pools with TVL over $1 million), we did not cover them in detail. It does not mean that you cannot find profitable options. Some of these pools will be covered later in this article.

DeFi yield farming with stablecoins

Many interesting strategies can be used to amplify potential returns on investments using stablecoins in creative ways. Investors can achieve impressive APYs by simply using their capital in a way that allows the layering of stakes. Note that using such approaches can be incredibly dangerous as each layer of investments will expose you to additional risks.

Here are some exciting methods of capital allocation using coins like USDC, DAI, or USDT:

1. Additional returns with liquid staking. Platforms like LIDO or MakerDAO allow users to stake their crypto holdings to receive equivalent tokens in exchange. For instance, LIDO pays 2.95% base APY (3.18% 30-day average) on ETH stakes and gives you an equal amount of stETH which can be used as collateral to borrow USDC on Aave for 5.92% (fluctuating) and stake stablecoins on IPOR for 17.45% base APY and 1.58% in rewards. In total, this setup yields 22.21% (using 30-day averages) minus 5.92% interest payments on loans bringing the total to 16.29%. This strategy is very risky and brings in exquisite profits.
2. Utilizing native staking features. DAI is an excellent example. Here, you can stake stablecoins in the DSR module and receive a 6.75% base APY. The resulting sDAI token can be used in DeFi for a variety of purposes just like the main coin. For instance, it can be used as collateral on Agave or staked there for 7.41% fluctuating APY. Gnosis also offers sDAI pools with 8.88% APY that fluctuate depending on the market conditions. In some cases, using stablecoins to provide liquidity directly to exchanges and protocols can be a better choice for a pragmatic investor.

DeFi yield optimization

It is important to keep your head cool when engaging with the crypto industry as it has many pitfalls invisible to a newcomer. Returns in some pools can look incredibly lucrative and attract people who are not aware of the high risks associated with investing, for example, Solana infamous for its many memecoins, scams, and questionable DeFi protocols.

Here are tips to amplify yields without overexposing a portfolio:

• Work with pools that have sizeable TVLs. Total Value Locked is an important metric that shows the pool’s popularity, utilization, and trustworthiness. The largest of them like stETH on LIDO ($26 billion) or BTC on JustLend ($5.36 billion) have APYs lower than 3% barely reaching higher 30-day averages. On the other hand, low-TVL pools may have APYs in thousands of percentage points, but have high-risk exposure or pay in native tokens that quickly succumb to inflation.
• Do not chase the biggest number. Many pools have mixed APYs where they show the combined return with the main stablecoin representing the bulk of the value receiving very small APYs. For example, Aerodrome’s ZUNUSD/USDC pair pool shows a 15.64% APY but it is a combination of 0% return on USDC and 15.64% on ZUNUSD. The latter is another stablecoin by Zunami with volatility higher than 0.2% on average and prices fluctuating from $0.95 to $1.01.
• Consider using hedging techniques. In some cases, implementing short-selling positions on staked assets can be a good idea. It will bring down APYs since you will have to pay interest on leveraged positions, but the added protection from market volatility can feel good. It is especially important for setups that involve liquid staking where the price of ETH can vary dramatically exposing you to additional risks.

The best stablecoin APY

Finding the right angle to approach this particular method of investing is quite hard even for experienced veterans. The idea of what “the best” means can also be different depending on your preferences and requirements as well as risk tolerance. In some scenarios, having a higher yield is justified and can be very profitable even in the long run. In others, it is a better approach to hunker down and enjoy consistent returns without ever exposing your portfolio to market volatility and impermanent loss.

Many people with relatively small starting capital often engage in high-risk investment opportunities to build a larger portfolio quickly. If you don’t have much to lose and can sustain losses, this approach is okay. On the other hand, large-capital holders interested in preserving wealth usually go for investments with lower returns and significantly lower risks. To understand this concept further, take a look at a short analysis below.

Stablecoin yield comparison

Let’s take a closer look at several interesting pools offering wildly different APYs and asset structures.

Note that we did not include projects focused on lending stablecoins. Platforms like Aave, Compound, and many others are considered reliable and safe investments, but their APYs are usually much lower compared to what DEXes are willing to pay for liquidity.

The TVL size correlation with the expected returns is consistent across the whole ecosystem. Generally, projects that attract liquidity well do not need to offer additional incentives risking to ruin their economies. 6% on MakerDAO is already a very high number. APYs among pools with massive TVLs usually range between 0.01% and 4%.

Solana continues to be the main destination for developers building questionable projects. ORCA is strongly focused on promoting memecoins and other digital assets originating from the Solana network. TVL numbers are usually low, APYs incredibly high, and risk level is also high simply based on the previous history of tokens minted on this blockchain. ORCA also has primarily two-sided pools with many additionally enjoying rewards in native tokens. However, it is still a very risky investment.

Fluid is craving liquidity and it shows in their APYs. The 11.75% 30-day average is quite impressive. Even the base interest rate is 9.87% including daily compounding. The exchange has high rates for all their pools but impresses us with consistent payouts on USDT or USDC investments.

Stablecoin yield farming strategy selection

We can swap pools in the comparison above quite easily. Some trends will remain unchanged like the correlation between the pool size and its APY. it is important to focus on building a balanced portfolio that does not have too many risky positions. Spreading capital across multiple pools can be a good decision. For example, you can stake the biggest portion of stablecoins in protocols that pay respectable APYs and have the goodwill of the community while putting some tokens in higher-risk endeavors like TON-USDT on DeDust for up to 24% in TON rewards or GHO on Aave for potential of earning over 27%.