When most people think of stablecoins, they think low-volatility, low-risk assets that are best used as a hedge or temporary reprieve from the wildness that is the cryptocurrency market.
While this is often the case, a new generation of stablecoins have emerged in recent times that challenge the status quo, and enable users to earn a yield without exposing themselves to volatility and hence offering a simple low-risk investment option.
Nonetheless, these yield-generating stablecoins represent just a small proportion of all available stablecoins, since they are a relatively new innovation that only a few platforms and projects have managed to pull off.
With that said, let’s take a look at three of the best ones currently available.
BXTB + CHIP
Designed to provide a stablecoin for enterprise and gaming use, BXTB’s CHIP stablecoin uses a unique system to maintain its peg to the US dollar (USD).
CHIP is unusual in the fact that it is collateralized by other stablecoins. This means anybody can mint CHIP tokens by simply staking their stablecoin of choice in a reversible process. This is achieved by combining a pre-existing stablecoin such as Tether (USDT) with a unique utility token known as BXTB through the BXTB wallet to produce yBXTB (activated BXTB) + CHIP tokens.
These CHIP tokens can then be used as a stablecoin with any supporting platforms, and are initially targeted to platforms offering games of chance, virtual worlds, in-app transactions and other enterprise use cases. BXTB has already forged partnerships with several prominent platforms including GameWorks Technologies (GWX) and Justbet, which will see CHIP tokens integrated into upcoming gaming products.
But more than this, the new cryptocurrency pair (BXTB + CHIP) is designed to power a range of new decentralized finance (DeFi) applications by allowing users to benefit from low-fee stablecoin options with the potential to earn a yield without suffering any lock-in effect. This is because yBXTB holders receive a yield derived from the transaction fees paid by CHIP users, while CHIP tokens can be freely used or converted back to underlying stablecoins with zero delay.
BXTB can be mined on a custom side-chain (termed a yield chain) that is programmatically linked to the Ethereum blockchain. This yield chain uses a novel consensus mechanism known as Proof-of-Capacity (POC) to make mining BXTB an equal access opportunity that doesn’t require any expensive hardware. Alternatively, the gaming token can be traded on Biki.
USD Coin (USDC)
USC Coin is one of the most popular dollar-pegged stablecoins, and was created by the Centre Consortium, a collaboration between the cryptocurrency exchange Coinbase and payment services provider Circle in 2018.
Like many other USD-pegged stablecoins, USDC is 100% backed by USD held in reserve by the issuers. As a result, it can freely interconverted back to USD with the issuer when needed — though there is a minimum redemption of 100 USD.
When held in a Coinbase exchange wallet, customers in select US states will receive a variable yield on their balance. The exact yield varies over time and has been as high as 1.25% but is currently hovering around 0.15% APY. This yield is extremely low compared to the other options on this list, but it is essentially risk-free, since Coinbase and USDC are arguably the most reputable names in the exchange and stablecoin space.
You will need to complete know-your-customer (KYC) checks before you are able to mint, redeem or earn a yield with USDC.
Kava is a blockchain-based platform that allows users to deposit a variety of cryptocurrencies to take out loans in the form of a stablecoin known as USDX.
By taking out loans with Kava, users are able to effectively leverage their portfolio, since the USDX stablecoins can be used to purchase volatile assets which could accrue in value faster than the stability fee paid for minting and redeeming USDX. This process can be repeated to maximize exposure to volatile assets.
But for those that want to keep things low-risk, holders of USDX stablecoins are entitled to several yield-earning opportunities. Firstly, USDX holders receive 4.5% APY — derived from the interest paid by borrowers on the Kava platform. They also receive regular KAVA token rewards paid out from a pool of KAVA tokens reserved specifically for platform users.
Beyond this, Kava recently released its own decentralized money market, known as Hard Protocol. Holders of USDX tokens can lend out their assets on this protocol to earn an additional return paid out in HARD tokens, which can fluctuate based on borrow-side demand on the platform.
However, it’s important to note that unlike the rewards paid out to yBXTB holders with BXTB’s solution and USD Coin holders, users of USDX stablecoins are subject to potential volatility risks — since the underlying collateral required to mint USDX can be volatile assets like XRP and Binance Coin (BNB). There is also the risk of liquidation if the value of this volatile collateral falls below the liquidation threshold.