Stablecoins for spending and earning require clearer categorization
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Stablecoins for spending and earning require clearer categorization
Distinguishing between payments and earnings can help achieve smarter user experiences, clearer regulatory frameworks, and easier widespread adoption.
Navigating Web3 tides with focused insightsAuthor: jacek
Translation: TechFlow
Not all stablecoins are the same. In fact, stablecoins primarily serve two core purposes:
Moving money → Payment-oriented stablecoins
Growing money → Yield-oriented stablecoins
This simple distinction is not exhaustive, but it's highly useful and enlightening for many. This categorization should guide our thinking around driving adoption, optimizing user experience, shaping regulation, and designing use cases.
Of course, other more complex classification methods—such as by collateral type, peg mechanism, degree of decentralization, or regulatory status—remain important, but they often fail to directly reflect actual user needs.
Stablecoins are widely seen as a breakthrough application in crypto, but to scale effectively, we need a more user-centric framework. You wouldn't use funds from a yield-generating vault to buy coffee, would you? Treating both types of stablecoins as one category—as many data dashboards do—is like depositing your salary into a hedge fund: technically possible, but logically unsound.
Certainly, the boundary between the two isn’t always clear. Stablecoins can simultaneously play payment and yield roles, and each design carries its own risks. Here, I focus on users’ primary use case and refine this distinction to avoid oversimplification:
Payment-first stablecoins: Prioritize maintaining their peg, aim for instant payments and low-cost settlement; typically leave yield with the issuer; can still be used to earn yield in lending markets; optimized for simplicity and ease of use.
Yield-first stablecoins: Still aim to maintain their peg, but typically pass yield from specific strategies to holders; generally used for holding rather than spending; come in diverse and complex designs.
As noted, stablecoins can shift between payment and yield roles. Yet, distinguishing between payment and yield can enable smarter user experiences, clearer regulation, and broader adoption. While the underlying peg mechanism may be similar (often identical), the use cases are fundamentally different.
This simple framework adopts a market-driven perspective, starting from how people actually use stablecoins rather than from code or regulations. Regulators are already reflecting this split—for example, the U.S. GENIUS Act references “payment stablecoins.” Builders are also embracing this idea; for instance, SkyEcosystem, which I’ve long been involved with, separates USDS (for spending/payments) from sUSDS (for yield).
So what does this payment-versus-yield distinction offer us?
Better risk frameworks
Risk assessment for yield-oriented stablecoins should focus on: yield sources and their health, strategy concentration, redemption/exit risks, resilience of the peg mechanism, leverage usage, and protocol exposure. Payment-oriented stablecoins, by contrast, require greater attention to peg stability, market depth and liquidity, redemption mechanisms, reserve quality and transparency, and issuer risk. A single risk metric cannot apply uniformly across all stablecoin types.
Mass-market adoption
The payment-yield distinction aligns with traditional finance (TradFi) mental models, reducing user confusion and operational errors. New users shouldn’t unknowingly hold complex yield-bearing tokens.
Improved user experience (UX)
Service providers like wallets should avoid conflating payment and yield stablecoins, which leads to user confusion. This distinction unlocks simpler, smarter wallet UX. While experienced users understand the difference, clearly labeling them in interfaces helps newcomers grasp the concepts. This improvement will also simplify integration for neobanks and other fintech firms. Of course, the real UX challenge goes beyond labeling—it includes educating users about tail risks.
Institutional adoption
The payment-yield distinction aligns with existing financial classifications, aiding better accounting treatment, risk isolation, and support for clearer regulatory frameworks.
Clearer regulation
Payment and yield stablecoins will face different regulations. These products have distinct risk profiles, so regulators naturally differentiate between them. Payments and investments (broadly defined as securities) are subject to almost entirely separate regulatory regimes globally—and for good reason. Lawmakers are already moving in this direction: for example, the U.S. GENIUS Act and the EU’s MiCAR regulation both recognize this divide. This doesn’t mean payment stablecoins can never offer yield (as discussed in the GENIUS Act), but their role would be closer to a savings account than a broad investment product.
Not a perfect model, but the simplest compass
While imperfect, this framework is the simplest way to orient products, users, and policies around purpose.
Some limitations:
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Yield is a complex category with many subtypes. Yield-oriented stablecoins encompass various structures, risk profiles, and use cases. Some generate yield via DeFi lending, others by staking ETH, or purchasing government bonds. It's a broad concept that may evolve further as markets mature—especially under regulatory scrutiny. In the future, the term "yield stablecoin" might give way to more precise and distinct categories.
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Who captures the yield? If yield isn’t passed to users, it typically accrues to other parties—usually the issuer. As mentioned, stablecoins can shift from "issuer-captured yield" to "holder-captured yield." Additionally, users can earn yield on stablecoins through lending markets, so it remains unclear whether yield-focused stablecoins are sufficiently distinct from other secondary yield sources in users' eyes.
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Naming debate: Some argue this broader category should be called "yield tokens" instead of "yield stablecoins." That view has merit, but in practice, yield stablecoins have emerged as a distinct subcategory characterized by stable pegs and specific user roles. They are often treated separately from non-stable tokenized real-world assets (RWAs), liquid staking tokens (LSTs), or other structured DeFi yield products. This trend may continue evolving, especially with supply-adjustable yield stablecoins, where boundaries often blur.
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Payment stablecoins might eventually offer yield: In the future, regulation may define this boundary. For example, MiCAR prohibits yield on payment stablecoins, while the GENIUS Act debates it. Markets will adapt accordingly based on regulatory frameworks.
These concerns are valid. However, treating "stablecoins" as a monolithic category doesn't help solve them. The payment-versus-yield distinction is a foundational and long-overdue framework. We should clearly label this split and build around it. If your stablecoin doesn't easily fit into one of these two buckets, you should explicitly state why.
Further research remains necessary, especially for assets at the blurry edges (like supply-adjustable tokens) or those entirely outside this framework (such as non-stable yield tokens and tokenized real-world assets).
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@Jacek_Czarnecki
