Stablecoins generally differ in terms of the assets backing them, collateral ratios, issuance mechanisms, and price maintenance mechanisms. While various stablecoins may be suitable for different application scenarios, they all share one common shortcoming: the lack of interest income.
Does this imply that stablecoin holders do not require interest income? Certainly not.
However, since stablecoins do not generate interest, their holders have no choice but to bear the continuous depreciation of the USD due to the Federal Reserve's high interest rates caused by inflation.
If stablecoin holders indeed require interest income, why not simply offer it? The reason is that current stablecoins are incapable of doing so due to their issuance mechanisms and underlying assets.
Most fiat-collateralized stablecoins are issued by centralized or decentralized organizations. Although these stablecoins usually maintain a stable value and a high collateral ratio, their total issuance tends to be relatively small. Consequently, this leads to lower yields and makes it challenging to provide high returns comparable to bank deposits.
Cryptocurrency-Collateralized stablecoins are typically issued when holders pledge a certain amount of cryptocurrency as collateral. Since the collateralized cryptocurrencies cannot generate interest income, stablecoin issuers are unable to provide a secure and stable income to their holders.
In conclusion, the current absence of interest in stablecoins primarily stems from their issuance mechanisms and underlying assets. This whitepaper will explore an interest-bearing stablecoin collateralized by ETH and stETH, addressing the need for stablecoin holders to generate interest income while maintaining the key features of stablecoins.
Following the Ethereum Shanghai upgrade, decentralized interest-generating stablecoins will at last have a viable solution. Decentralized smart contracts leveraging the high yields provided by the Liquid Staking Derivatives (LSD) revenue flywheel will generate secure, price-stable, and interest-stable stablecoins, such as eUSD.
The introduction of eUSD as an interest-bearing stablecoin collateralized by ETH and stETH will offer stablecoin holders the opportunity to earn interest income while preserving the key attributes of stablecoins. This innovation will bridge the gap between traditional stablecoins and the need for interest generation, creating a more attractive and functional stablecoin alternative.