Stablecoin Yields Aren’t All Built the Same Yield-bearing stablecoins are becoming a core part of DeFi’s capital base. But not all yield is created equal and the mechanisms vary widely. At @levelusd, reserves are routed through onchain lending markets. Others deploy capital into tokenized Treasuries. Some rely on synthetic hedging or rebasing mechanics. Each design carries trade-offs: transparency, composability, scalability. Over time, only a few have proven durable. Here’s a breakdown of the five different models, and why the most resilient systems still center around one thing: lending. 1️⃣ Lending-Backed Yield Deposits go into protocols like @aave or @morpholabs. Borrowers pay interest. Yield flows to holders, either directly or via wrappers like slvlUSD. → Fully onchain → Variable but composable → No intermediaries Level uses this model. For a reason. 2️⃣ Tokenized Treasuries (RWA-Backed) Reserves are parked in tokenized T-bills or similar TradFi instruments. Yield is streamed or rebased via custodians. → Predictable returns → Permissioned rails → Custody risk TradFi-aligned, but can struggle to integrate with DeFi systems. 3️⃣ Delta-Neutral Hedging Backed by ETH, stETH or similar assets, paired with short perps to neutralize price exposure. Yield comes from funding rate arbitrage. → Onchain mechanics → High APY in bull runs → Complex and brittle These work, until they don’t. 4️⃣ Crypto-Collateralized & Algorithmic Stablecoins These stablecoins often rely on crypto collateral and algorithmic design. Their yield tends to come from minting fees, borrowing interest, or token incentives. → Fully onchain and non-custodial → Can maintain peg with market incentives → Exposed to depeg risk and complex feedback loops Volatility can significantly impact the stability and sustainability of this model. 5️⃣ Vault Wrappers The stablecoin itself remains fungible and money-like. Yield is opt-in via a secondary token (e.g. slvlUSD), which accrues interest from defined strategies. → Modular and transparent → Preserves usability → Frictionless integrations This is the foundation of Level’s design. The takeaway: Yield isn't created equally, and the mechanism behind it matters. When deciding where to allocate your capital, consider custody models, composability, and the volatility of different stablecoins. For a protocol aiming to build an on-chain bank, only one mechanism consistently delivers battle-tested performance, transparency, and scale: lending yield. Level 🆙