Stablecoins that can be spent and earned need to be more clearly categorized

Author: Jacek

Compiler: Deep Tide TechFlow

Not all stablecoins are created equal. In fact, there are two main core uses for stablecoins:

Transfer funds → payment stablecoins

Value-added funds → income-based stablecoins

This simple distinction is not comprehensive, but it is very useful and instructive for many. This division should guide our thinking as we drive adoption, optimize the user experience, develop regulatory policies, and design use cases.

Of course, other, more complex categorizations (e.g., by collateral type, anchoring mechanism, degree of decentralization, or regulatory status) are still important, but they often do not directly reflect the actual needs of users.

Stablecoins are widely considered to be a breakthrough application in the crypto space, but to scale up, we need a more user-centric framework. You're not going to use the money in the proceeds vault to buy coffee, are you? Putting two types of stablecoins into one category (as many data panels do) is like putting your salary into a hedge fund: technically possible, but not quite logically sound.

Of course, the line between the two is not always clear. Stablecoins can play the role of both payment and yield, and each design has its own risks. Here, I'll focus on the main uses of the user and refine this distinction to make it less simplistic:

Payment-first stablecoins: remain pegged as much as possible, with the goal of instant payouts and low-cost settlements; Usually the proceeds are reserved for the issuer; Income operations can still be carried out in the lending market; Optimized for simplicity and ease of use.

Yield-first stablecoins: still aim to remain anchored, but typically pass on the benefits of a specific yield strategy to holders; Usually used for holding rather than consumption; The design forms are diverse and complex.

As mentioned, stablecoins can switch between payment and yield roles. However, the separation between payments and earnings can help enable a smarter user experience, a clearer regulatory framework, and easier adoption. It's the same anchoring mechanism (as it usually is), but it serves a very different purpose.

This simple framework takes a market-driven perspective, starting from how people actually use stablecoins, rather than from code or regulations. REGULATORS HAVE BEGUN TO REFLECT THIS DIVISION, SUCH AS THE "PAYMENT STABLECOINS" MENTIONED IN THE US GENIUS ACT. Builders are also practicing this philosophy, such as the SkyEcosystem project, which I have been involved in for a long time, which separates USDS (spending/payment) from sUSDS (earnings).

So, what can the division of payments and earnings bring us?

A better risk framework

The risk assessment of yield-based stablecoins should pay attention to: income sources and their health, strategy concentration, redemption/exit risk, resilience of the anchoring mechanism, leverage usage, protocol risk exposure, etc. Payment stablecoins, on the other hand, need to pay more attention to anchor stability, market depth and liquidity, redemption mechanism, reserve quality and transparency, as well as issuer risks. Uniform risk assessment metrics cannot be applied to all types of stablecoins.

Popularity of the retail market

This distinction between payments and earnings is in line with the traditional financial (TradFi) mindset and reduces user confusion and operational errors. Novice users should not unknowingly hold complex yield tokens.

Better User Experience (UX)

Service providers such as wallets should avoid confusing payment and yield stablecoins, which can lead to user confusion. This distinction will unlock a simpler and smarter wallet user experience. While the difference between the two is well known to experienced users, it can be clearly marked in the user interface to help newcomers understand. This improvement will also simplify the integration of neobanks and other fintech companies. Of course, the real UX challenge isn't just labeling, but also educating users about tail risks.

Adoption in the institutional market

The separation of payments and earnings is consistent with existing financial classifications, helping to improve accounting treatment, risk segregation, and support a clearer regulatory framework.

Clearer regulation

Payment and yield stablecoins will be regulated differently. These two types of products have different risk profiles, so it is natural for regulators to distinguish between them. Payments and investments (securities in the broadest sense) almost always have completely different regulatory regimes around the world. This is no coincidence. Legislators are already working in this direction: for example, the GENIUS Act in the United States and the MiCAR Regulation in the European Union recognize this. THIS DOESN'T MEAN THAT PAYMENT STABLECOINS WILL NEVER BE ABLE TO PROVIDE YIELD (AS DISCUSSED IN THE GENIUS ACT), BUT THEIR ROLE IS CLOSER TO THAT OF A SAVINGS ACCOUNT THAN A BROAD INVESTMENT PRODUCT.

It's not a perfect model, but it's the simplest way to get directions

While this framework is not yet perfect, it is the easiest way to position products, users, and policies around purpose.

Some shortcomings:

• Earnings is a complex category with multiple subcategories. Yield-based stablecoins cover a variety of sub-types with different structures, risks, and uses. Some borrow through DeFi, some stake ETH, and some buy treasury bonds. It's a huge concept that is subject to change as the market matures, especially with regulatory intervention. In the future, the concept of "yield-based stablecoins" may be split into more specific and clear categories.

• Revenue attribution: If the revenue is not passed on to users, then the revenue will usually be taken by other participants (usually the issuer). As mentioned earlier, stablecoins can move from "issuer earnings" to "holders' earnings". In addition, stablecoin users can also earn income through the lending market, and it is uncertain whether yielding stablecoins are sufficiently different from other secondary sources of income from the user's perspective.

• Naming controversy: Some argue that this broader category should be referred to as "yield tokens" rather than "yield stablecoins." This view is reasonable, but in reality yielding stablecoins have emerged as a distinct subcategory characterized by stable anchoring mechanisms and specific user personas. They are often seen as a separate class from tokenized real-world assets (RWAs), liquid staking tokens (LSTs), or other DeFi structured yield products for non-stablecoins. This trend is likely to continue to evolve as the market evolves, especially when it comes to yield-based stablecoins with an adjustable supply, where the boundaries tend to blur.

• Payment-based stablecoins may also provide yields: in the future, this boundary may be defined by regulation. For example, the MiCAR Regulation prohibits payment-based stablecoins from providing yields, while the GENIUS Act debates this. The market will adjust accordingly according to the regulatory framework.

These concerns do exist. However, treating "stablecoins" as a single category in general does not help solve the problem. The distinction between payment and income is a fundamental and long-overdue framework. We should clearly label this division and build around it. If your stablecoin doesn't easily fall into one of these two categories, make that clear as well.

More research is still needed, especially for assets that blur the line (e.g., tokens with an adjustable supply) or that are completely outside of this framework (e.g., non-stable yield tokens and tokenized real-world assets).