Community Trust ScoreLikely Real
- Automated Market Maker (AMM) and USDT
- Lending via De-Fi and USDT
- Lending via Centralized ledger and USDT Flash Loans
- Lending via Centralized Exchanges and USDT
Stablecoin yields is becoming very interesting. Tether tokens (USDt) facilitate yields that are 40x-200x the average savings account interest rate. How are these yields generated? How is it possible to make such higher interest rates possible?
Stablecoin yields come from lending and borrowing activities. USDt holders lend their capital to earn interest on their holdings. The lending happens by: 1. Providing liquidity to Automated Market Maker (AMM) platforms like Uniswap, SushiSwap, JustSwap, Serum, and Curve. 2. Lending to borrowers via De-Fi platforms like C.R.E.A.M or Compound. 3. Lending institutional borrowers via centralized lenders like Celsius. 4. Lending via centralized exchanges like Bitfinex.
Automated Market Maker (AMM) need liquidity to facilitate swapping. Liquidity providers earn a percentage of all fees generated by the platform, price fluctuations are applicable, and therefore the yield is variable based on total trading volume. If trading volume falls, the yield will falls. Trading volumes of USDt pairs are higher than other assets.
Lending via De-Fi, helps borrowers borrow directly from a Dapp. Borrowers pay a fee to borrow assets for a period of time. Flash loans offer loans without collateral; however, these loans should be paid back within the same block, and they cannot be borrowed for longer time periods. In this process, the borrower should post capital so that the lender can liquidate if the value of deposited assets become very low than the amount borrowed. Based on supply and demand, the DeFi lending rates vary.
Lending via a Centralized Lender helps lending USDt using a lender who will loan digital assets to other businesses who are looking to leverage using stablecoins. These loans are facilitated to approved clients assessed for creditworthiness, most of whom are willing to provide collateral. The lender is an intermediary. In this process if many borrowers default, depositors will suffer a loss. Centralized lender’s interest rates are typically fixed for a reasonable period of time and are adjusted to suit market conditions.
Centralized exchanges offer to facilitate USDt lending. Traders borrowing USDT and are willing to pay a fee. They use it to leverage trade. The interest rates are variable for depositors. How well the exchange manages the leverage and liquidation process determines the profitability for depositors.
Tether_io clarifies that Stablecoin yields are solely possible due to the unique properties of a digital bearer asset (settlement finality via an open network) and the applications that have been built using these assets.
