Are Stablecoin Yields Better Than Bonds?

by Chris Coney
By Chris Coney

In modern portfolio theory, the yield on government bonds is considered to be the risk-free rate.

In reality, there’s no such thing as risk free, as all investments inherently carry some degree of risk.

Government bonds are just considered a safe bet because a government can’t go bankrupt.

The theory goes that a government always has the option of taxing its citizens to raise money. Alternatively, in the modern central banking model, it can print more money to fund deficits.

Now, when it comes to government bonds themselves, they’re seen as a no-lose situation.

Most traditional investors consider Treasury bond yields to be risk free because even if the value of a bond goes down in value after you buy it, you still get paid back when the bond reaches maturity.

This is a big reason why bonds are considered the premier place to park cash.

Consider a 3-month U.S. Treasury bond. At time of writing, it pays an annual percentage yield of 4.4%.

Now let’s compare that with one of the recommendations I made in my Crypto Yield Hunter service.

This specific recommendation is for a simple stablecoin staking opportunity. It’s been running for a month and has achieved an APY of 6.77% at time of writing.

This is moderately higher than the Treasury bill.

Not only is the APY higher, but stablecoins tend to be less volatile. As its name suggests, stablecoins are relatively stable; their value is pegged to a currency, commodity or financial instrument such as the dollar.

In the last year, the value of this stablecoin has only fluctuated between 99 cents and $1.01.

Contrast that with the 3-month Treasury, which has a 12-month low of 97 and a high of 101 — slightly more volatile.

Then there’s the opportunity cost, which further dilutes the notion that bonds offer a risk-free rate.

If a bond goes down in value after you buy it and you decide to simply hold it to maturity, the question is: What did that cost you?

What else could you have been doing with that money during that time?

For instance, if you had instead invested that money in the same stablecoin opportunity I mentioned, you could earn a superior rate of return and you could get your money out — with your principle intact — in seven days.

Balancing Out the Argument

This sounds too good to be true. So, what is the catch?

The catch is liquidity.

Let’s say the bond market emptied its liquidity into the stablecoin opportunity I’m talking about. If that happened, the yield would go from 6.77% to a tiny fraction of a percent.

This is the main reason I can’t name the opportunity in this article. If I did that, it would cause a rush of new capital to come in and harm the yields my Crypto Yield Hunter members are currently enjoying.

But to balance out the argument in favor of Treasurys, while bonds do carry an opportunity cost, stablecoin yields carry a smart- contract security risk.

While they go through rigorous security audits, hackers occasionally find tiny security holes they can exploit.

You could say the risk of this happening is on par with the risk of holding a bond that’s underwater until it matures.

Even if that’s the case, the stablecoin yield still offers no price risk to capital and offers a greater yield … plus the ability to get your money out in just a week.

But as I said, DeFi liquidity is still just a drop in the bucket compared to traditional markets.

According to DeFiLlama, there’s only $39 billion in total value locked.

Compare that with the total marketable value of U.S. Treasury debt as of October 2022: $23 trillion.


Indeed, the low liquidity in DeFi markets is a blessing in disguise for smaller investors.

Since it’s not worth their while for big-money investors to deploy capital into DeFi, it gives smaller investors a head start by allowing them to earn high yields on their money before big money arrives.

This quirk of DeFi is an enormous boon for people living in countries with internet access but poor financial infrastructure.

For example, I was contacted by one of my MasterClass students recently who had less than $100 in savings and had invested it in a stablecoin yield opportunity.

That individual may only end up earning a few dollars a year, but it's better than anything else that’s available to my student and may be the equivalent of an extra day or two in wages.

And that’s all while crypto is in a bear market.

But that’s all I’ve got for you today. Let me know if you think stablecoin yields are better than bonds by tweeting @WeissCrypto.

I’ll catch you here next week with another update.

Until then,

Chris Coney

About the DeFi & Crypto Educator

Chris Coney is among the world’s most experienced educators in the field of decentralized finance (DeFi) and cryptocurrencies. He is also one of the few analysts in the world specializing in the field of “yield farming” — hunting for the high yields now possible in the fast-growing DeFi world — and showing others how they can do the same.

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