Issuance of stablecoins, known as "digital dollars," has been steadily increasing, and yield-bearing stablecoins with an interest payment feature have recently gained popularity. Stablecoins had been seen only as a global payment and remittance tool, but they are now emerging as a means of personal finance.
According to crypto market analytics firm CoinGecko on the 2nd, the market capitalization of stablecoins hit a record high in the third quarter of this year at $287.6 billion (about 413 trillion won), up 18.3% ($44.5 billion) from the previous quarter. Among them, the stablecoin (USDT) issued by Tether and the stablecoin (USDC) issued by Circle, which is listed on Nasdaq, accounted for 85% of the market, ranking first and second, respectively.
In particular, the market share of the yield-bearing stablecoin USDe increased, drawing attention in the crypto industry. The coin's market cap in the third quarter of this year was $14.7 billion, up 177.8% ($9.4 billion) from the previous quarter. It overtook the traditional stablecoin USDS, which had been No. 3.
A yield-bearing stablecoin is a coin that pays interest when you buy and deposit a stablecoin. It is similar in structure to deposits, where you deposit money in a bank and receive interest. Ultimately, a yield-bearing stablecoin allows you to deposit dollars and receive interest, similar to a dollar deposit. The advantage of using stablecoins, however, is the ability to save on currency exchange fees and other costs.
Ethena, the issuer of USDe, offers an annual reward (interest) of 4.4% as of Sept. 30 for depositing its stablecoin. Global financial payments company PayPal also decided in April to offer an annual reward of 3.7% for deposits of its stablecoin PYUSD. PYUSD's market cap in the third quarter of this year was $2.7 billion, up 155.9% ($1.5 billion) from the previous quarter.
The structure of stablecoins does not change just because they can pay interest. Until now, stablecoin issuers have generated revenue by investing the dollars received from issuing coins in money market funds (MMFs) or ultra-short-term U.S. Government Bonds and collecting interest. But some issuers have begun sharing a portion of the interest they receive with coin holders. As the stablecoin market became a duopoly of USDT and USDC, it was a way to attract customers.
The crypto industry says the advent of yield-bearing stablecoins marks a new phase for the market. The advantage of stablecoins had been the ability to make global payments and remittances at low expense, but now stablecoins themselves can emerge as a means of personal finance.
Still, there is no shortage of concerns. An extreme leverage strategy—taking out another loan using deposited stablecoins as collateral and then investing again in yield-bearing stablecoins—has been trending overseas. The worry is that highlighting only the risks of yield-bearing stablecoins could throw cold water on a growing market. In extreme leverage structures, even a slight decline in the value of a stablecoin can cause losses to spiral.