Stablecoins have taken center stage as a hot commodity, experiencing a surge in demand unlike ever before, as highlighted by Ignas, Co-founder of PinkBrains. This surge is driven by a myriad of factors, including the skyrocketing on-chain leverage and the enticing opportunities it presents for traders.
Over the past year, borrowing rates for stablecoins have seen a monumental spike, with rates for USDT on platforms like Aave v2 soaring from a mere 1% to a staggering 37%. Traders are capitalizing on this trend by borrowing stablecoins to either bolster their crypto holdings or explore the myriad of on-chain opportunities available to them.
Despite Bitcoin reaching all-time highs, the aggregate supply of stablecoins still lags, with only USDT surpassing the peak seen during the 2020-21 bull market. However, there’s been a notable expansion in stablecoin supply since October 2023, coinciding with increased capital inflows into the crypto market.
Competition to attract stablecoins is fierce, with platforms offering lucrative yields to entice investors. As further noted by Ignas, Maker, once a beacon for bear RWA yields, now struggles to compete with the speculative bull yields offered elsewhere. For instance, while sDAI offers a modest 5% yield, platforms like Ethena Labs’ USDe boast a staggering 33%, with additional incentives like airdrops further sweetening the deal.
Moreover, projects like Instadapp’s 0xfluid are doling out millions in mining rewards to attract stablecoin deposits, with yields reaching as high as 36% when factoring in additional rewards. Airdrop farming has also emerged as a significant factor contributing to the high yields of stablecoins, as investors borrow stablecoins to earn more points in airdrop programs.
Platforms like Marginfi are witnessing astronomical borrowing rates, with borrowing USDT costing as much as 61%. This trend underscores the genuine demand for stablecoins and the lengths to which investors are willing to capitalize on them.
