DeFi Beginner’s Guide (Part 2): After Binance Ends USDC Subsidies, How Off-Chain Workers Can Steadily Earn 10% APR on Stablecoins

Author:++@Web3Mario++

Abstract: This week, Binance’s subsidy program for USDC’s flexible savings has expired. This low-risk financial scenario, which allows for deposits and withdrawals at any time with immediate returns, is most suitable for DeFi newcomers, especially for some off-chain office workers looking to allocate assets. With an interest rate close to 12%, it stands out in the entire Web3 space. Therefore, I believe many friends are eager to find alternative low-risk stablecoin investment scenarios. In this article, I will outline the principles most suitable for DeFi newcomers, particularly for off-chain office workers participating in DeFi, and analyze several stablecoin investment scenarios that offer similar returns and lower risks, suitable for this group of users.

Seven Principles for “Off-chain Office Workers” Participating in Stablecoin Investments

First, I would like to describe a scenario. If you find this scenario appealing, then the content of this article will be useful to you:

By simply configuring assets through on-chain operations, you can achieve an annualized return of 10% in USD terms, with funds available for deposit and withdrawal at any time, no locking required, and very low risk of principal loss. You do not need to frequently check your dashboard.

Such scenarios are relatively rare in traditional finance. To achieve a return exceeding the short-term U.S. Treasury yield of 3.7%, you would have to learn complex hedging and arbitrage knowledge, pay attention to the fundamentals of certain junk bonds, and bear the risks of P2P defaults. However, in the DeFi world, due to varying market maturity and changes in the regulatory environment for stablecoins, there are numerous stablecoin issuers and lending protocols. In this competitive market landscape, each player allocates additional subsidies to stimulate product adoption, much like the generous coupons offered during the “food delivery wars.” Therefore, at this market stage, it is still possible to find stablecoin investment scenarios that offer relatively attractive returns with controllable risks.

These stablecoin investment scenarios are suitable for non-cryptocurrency believers who seek stable returns, especially for some off-chain middle-class office workers. Because you do not need to bet on the price movements of cryptocurrencies, you simply enjoy the on-chain capital premium paid by speculators or degens seeking alpha returns. Moreover, during the asset allocation process, you do not need to invest too much in learning and time costs. Therefore, during a rate-cutting cycle, if you still want to maintain your exposure to USD stablecoins, it is worth paying extra attention to stablecoin investment scenarios.

First, I would like to outline several important principles for this group of users when choosing stablecoin investment scenarios:

1. Simple operations, avoid complex on-chain interactions: For DeFi newcomers, it is essential to remember that the more complex the on-chain interactions, the more risk exposure and higher usage costs there are. You may inadvertently open a phishing platform and authorize your funds to a malicious address during an interaction. Or, when moving funds across chains, you might mistakenly enter the wrong receiving address. Therefore, for DeFi newcomers, it is advisable to choose investment scenarios with simple operations to avoid unnecessary losses.

2. Only choose mature platform products, control your greed: Typically, new protocols will allocate more rewards to users. When faced with the temptation of extremely high yields, please control your greed, as many DeFi products are developed by anonymous teams. In the event of malicious incidents such as fund theft, you will ultimately only receive an explanation letter and a pile of worthless token compensation from the recovery plan. Moreover, new protocols will face challenges from hidden hackers in the on-chain dark forest, and whether they can withstand this is uncertain. Therefore, for DeFi newcomers, I recommend initially choosing only mature platforms and protocols, and maintaining sufficient vigilance towards stablecoin investment scenarios that exceed 10%.

3. Pay attention to the yield model, avoid “tokenomics” traps: We should also pay attention to the APR figures indicated on the official website, carefully studying the composition of the yields and the conditions for yield realization. Many projects try to alleviate the pressure on token prices from subsidies through tokenomics design. For example, the rewards you receive may not be directly sellable on the secondary market for compounding operations, requiring a lengthy unlocking period before you can access your rewards. This introduces significant uncertainty, as you cannot predict the price trend of the reward tokens during this unlocking period, which will greatly affect your final actual yield. Therefore, when choosing investment scenarios, try to select those where obtaining yields is relatively easy.

4. Not all “stablecoins” will remain stable: In fact, stablecoins have been an important innovation direction since DeFi Summer. Remember the algorithmic stablecoin boom driven by Luna, that vibrant and competitive landscape is still fresh in our minds… However, as time has progressed, only stablecoins with 100% reserves can guarantee a certain level of stability. However, there are significant differences in how various entities manage their reserves. For example, Ethena’s USDe has reserves composed of a delta-neutral perpetual contract funding rate arbitrage combination, while the recently popular Falcon’s USDf has a more complex management mechanism. In this article, we will not delve into further details, but I recommend that novice users, if you do not want to worry about whether your principal is de-pegged during work hours, choose payment-type stablecoins backed by large institutions with reserves composed of highly liquid assets, such as USDT, USDC, etc., or decentralized stablecoins over-collateralized by blue-chip assets, such as USDS, GHO, crvUSD, etc.

5. Understand the yield fluctuation mechanism, choose products wisely: Another point you need to understand is that the yield you see at a certain time may not be sustained. Therefore, you need to be able to judge how long the attractive yield can be maintained. A typical example is when you find that the supply rate of USDC in a lending protocol exceeds 15%, but this usually means that the utilization rate of that liquidity pool exceeds 95%, and borrowers will bear borrowing rates exceeding 20%. Therefore, this is typically unsustainable. Do not harbor any delusions, as automated arbitrage protocols will continuously scan for such rate anomalies and quickly arbitrage them away. After familiarizing yourself with the basic usage logic of DeFi protocols, you can explore fixed-rate products like Pendle.

6. Try to interact during network off-peak times to avoid expensive operation costs: Another easily overlooked detail is to choose the timing of your interactions with DeFi. Try to interact during off-peak times, so when operating, you can open Etherscan to check the current gas levels. Currently, it seems that below 0.2 GWEI is the average level when the network is relatively idle. Therefore, when invoking Metamask, try to check the fee cost; otherwise, the $100 reward you accumulate may cost you $120 in gas to claim.

7. In the new cycle, do not overlook exchange rate risks: Finally, if you are a non-USD-based investor reading this, please pay attention to exchange rate risks, as current macroeconomic changes point towards a trend of USD depreciation. Just in the past month, the RMB has appreciated by about 1%. Therefore, when making investment decisions, consider exchange rate factors as well.

Recommended Stablecoin Investment Scenarios with 10% Returns Suitable for DeFi Newcomers

After introducing these principles, I would like to recommend two stablecoin investment scenarios that are relatively suitable for DeFi newcomers as alternatives to Binance’s USDC flexible savings.

The first is providing RLUSD in Ethereum AAVE V3, which can yield a relatively consistent 11% APR. First, RLUSD is a fiat-backed stablecoin initiated by Ripple Labs, pegged 1:1 to the dollar. Most of its reserves consist of high liquidity assets such as USD and short-term government bonds, and it operates strictly within the regulatory framework of a trust company in New York, ensuring stability and security. Additionally, RLUSD’s issuance has surpassed 700M, and it has over 50M in liquidity on Curve, meaning the slippage cost for users entering positions is also low.

In Ethereum AAVE V3, we can see that providing RLUSD can yield an APR of 11.56%, of which 1.08% comes from the interest paid by RLUSD borrowers in AAVE, and this reward will automatically roll into the user’s principal. The other 10.47% of the reward comes from Ripple’s official subsidies to liquidity providers, which are distributed through the Merit Program and issued uniformly every two weeks, allowing users to actively claim them on the Aave Chan Initiative Dashboard. Based on my observations, the subsidies have been ongoing for several months, indicating that this yield has been maintained for a considerable period. Participating in this scenario is also quite simple; you only need to exchange RLUSD on Curve and supply it to AAVE.

The second is providing the GHO stablecoin in Avalanche AAVE V3, which can yield a relatively consistent 11.8% APR. First, GHO is an over-collateralized decentralized stablecoin issued by AAVE. We have previously detailed its specific mechanism, so I will not elaborate here. The collateral for GHO consists of blue-chip crypto assets designated by AAVE, and it relies on AAVE’s liquidation mechanism to ensure the price stability of GHO.

Avalanche is a high-performance L1. Although it is gradually lagging in ecological development, it has strong compliance resources behind it. Similar to RLUSD, the 11.8% APR obtained from providing GHO stablecoin in Avalanche AAVE V3 is also composed of two parts: a 1.33% borrowing rate and a 10.47% yield from AVAX’s official subsidies. This part is also distributed through the Merit Program and issued uniformly every two weeks, allowing users to actively claim them on the Aave Chan Initiative Dashboard. The subsidies have also been ongoing for a considerable time. It is important to note that this part of the reward is issued in the form of asAVAX, which is a deposit certificate for sAVAX in AAVE, while sAVAX is a deposit certificate for staking AVAX in the leading liquid staking protocol BENQI in the AVAX ecosystem to participate in POS mining. If you wish to exchange this reward for other tokens, you need to unstake through BENQI, and there is a cooling-off period of 15 days. Of course, this part of the token is also an interest-bearing asset, yielding 5% staking rewards.

I believe these two stablecoin yield scenarios are quite suitable for DeFi newcomers and off-chain office workers, and everyone can participate cautiously.