Stablecoin Bible: Risk Indicators and Comparative Analysis

Author:Panterafi

There’s a lot of discussion about the stability of stablecoins, but not so much about risk, and I think that’s what needs to be discussed. It’s something I’ve been thinking about for months, and I’m excited to finally share it with you.

Summary

• Discussion on the future and past of stablecoins

• Main categories of stablecoins

• Comparative analysis of risk indicators

• Solana ecological development status

Discussion on the future and past of stablecoins

Here we focus on compiling the wonderful views of the past leaders on the development of stablecoins.They are mainly exploring several paths for how DeFi can achieve mass global adoption through stablecoins.

“Global adoption requires On-chain FX”— haonan

This is expected to improve global trade settlements.On-chain FX transactions can handle cross-border payments, remittances, and exchanges with local stablecoins or fiat currencies without regulatory barriers.It replaces slow traditional systems with instant, low-cost redemptions.

To achieve widespread adoption, on-chain FX will require deep AMM pools capable of sustaining, for example, $11 billion in trading volume over a 30-day period.Managing slippage can quickly become a challenge, as well as requiring scalable infrastructure and payment systems built on top of it.Stablecoin ecosystems for foreign exchange must also prioritize robust security.

To achieve widespread adoption, on-chain FX trading requires deep AMM pools capable of handling up to $11 billion in trading volume over a 30-day period.Managing slippage can quickly become a challenge, along with building scalable infrastructure and payment systems.A stablecoin ecosystem for foreign exchange must also prioritize strong security.

“Agent payment can greatly improve the user experience of small online transactions” — hazeflow_xyz

x402 is an open source, internet-native payment protocol developed by Coinbase.It utilizes the HTTP 402 “Payment Required” status code to enable instant micropayments in stablecoins such as USDC.

x402 has the following advantages:

• Autonomous operation: AI agents can pay independently for services, data, computation, or tools in real time, enabling a machine-to-machine economy without human intervention.

• Instant Settlement: Transactions are confirmed in seconds, are final, have no chargebacks, and have zero agreement fees, making it ideal for high-frequency micropayments.

• Frictionless integration: Agents require minimal setup to attach stablecoin payments to any web request, solving traditional payment barriers like API keys or intermediaries.

• Compliance and Security: Built-in verification and settlement mechanisms ensure compliance with regulatory requirements while leveraging stablecoins to maintain price stability in a volatile cryptocurrency environment.

• Scalability of the AI ecosystem: It supports an agent marketplace where agents can autonomously trade resources, thereby facilitating the growth of stablecoin-based infrastructure powered by facilitators such as Coinbase or PayAI.

“Blockchain and public transaction networks can enhance trust and transparency, thereby reducing illegal transactions.”

Traditional banks such as Deutsche Bank and audit firms such as Deloitte and Ernst & Young have faced serious accusations of audit errors or money laundering.Many politicians have also been convicted of embezzlement of public funds.

I think one of the big advantages of using blockchain-based stablecoins is the ability to reduce corruption, illegal transactions, and money laundering.Financial police will be able to track any money movements, and auditors will have a clearer picture of business operations.This may also lead to new wallet tracking/data analysis (e.g. Dune) positions.A deeper understanding of capital flows and precise data analysis are expected to give rise to new concepts and economic models.

To me, blockchain is not just a practical revolution (from a business perspective), it also regains public trust in governments and their elites by giving them control and oversight transparency.

“Stablecoin infrastructure will eventually become invisible” — Suhail Kakar

He emphasized that the blockchain stablecoin will not be known to the public.Retail users don’t care about the technical background behind it, as long as they have a fully functional payment system.For example, he said that Telegram was originally developed as an instant messaging application and later integrated the TON network. Users unknowingly received wallet and payment services without realizing that it was a cryptocurrency or blockchain.This is exactly what companies like Circle, Tether, Coinbase, and Stripe are building with payment infrastructure that allows merchants to accept cryptocurrency payments without any knowledge of cryptocurrencies.Merchants receive the dollars, the infrastructure handles all blockchain-related work, and customers enjoy a smooth checkout experience.

Cryptocurrency’s greatest success will come when people stop talking about it and instead become invisible infrastructure that powers the experiences people actually want.

“The market value of income-based stablecoin protocols has skyrocketed” — Jacek_Czarnecki

Their combined market capitalization increased 13 times, from $666 million in August 2023 to $8.98 billion in May 2025, peaking at $10.8 billion in February.

They currently account for 3.7% of the entire stablecoin market (totaling $300 billion).

There are currently more than 100 income-based stablecoins on the market; among them, mainstream stablecoins such as Ethena’s sUSDe and Sky’s sUSDS/sDAI account for 57% of the market share ($5.13 billion).They have distributed nearly $600 million in earnings since mid-2023.

There are two main driving factors for the recent emergence of new income-generating stablecoins:

• The first point comes from its core concepts: delta neutral hedging (Ethena USDe) and soft liquidation mechanism (Curve crvUSD), allowing the stablecoin to recover from the Luna crash and grow to a market value of US$300 billion.

• The second point comes from the government level, they are starting to recognize certain types of crypto assets as financial instruments, which paves the way for innovation.Regulatory developments such as the GENIUS Act in the US (signed in July 2025, requiring 1:1 reserves, anti-money laundering/know-your-customer processes, and banning uncollateralized algorithmic stablecoins), the EU’s MiCA, and related frameworks in the UK and Asia, have boosted institutional adoption and trust.

• “New revenue model and white label distribution” — hazeflow

• In a low interest rate environment, such as when the government steps in, new incentive models can be established.Governments can incentivize users to use stablecoins.In a high interest rate environment, stablecoins, especially decentralized stablecoins, can gain an advantage by providing yields or incentives through their reserve assets.Users can earn annual returns sufficient to offset inflation simply by holding stablecoins.These benefits can be converted into cash rebates or utility benefits through close cooperation with partners.

• Stable infrastructure and a business like Apple or Microsoft can mutually benefit.Businesses can gain new revenue streams, and stablecoins can gain a large user base, thereby promoting global development.

• The United States is the most fertile ground for the growth of stablecoins, with regulation on track and the largest market size.In terms of the practicality of stablecoins, poor countries are more willing to use stablecoins due to the weakness of their own currencies.

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Let’s now dive into the specific characteristics of each stablecoin to understand their risk metrics and reward mechanisms.I wrote and created these charts to help you gain a comprehensive understanding of the various mechanisms so you can find which ones are more robust, have higher or lower returns.

Stablecoins are the backbone of DeFi. It is not the best choice to invest all idle funds in one protocol. Diversity is the key, but to obtain stable returns, diversity is limited and trade-offs must be made between different stablecoins.

Stablecoin category

Collateralized stablecoins (overcollateralized using cryptocurrencies or RWAs):

Income mechanism: Users borrow with collateral (ETH, BTC) higher than the value of the issued stablecoin, and earn income through lending fees, RWA interest (U.S. Treasury bonds) or protocol profits.Excess collateral acts as a buffer.

For example: USDS (Sky, income comes from RWA and lending), GHO (Aave, income comes from borrowing fees), USR (Resolv, income comes from tokenized assets), USDe (Ethena, income comes from pledged ETH and futures), USD0 (Avalon, income comes from RWA interest), cUSD (Celo, income comes from natural resource support).

How income is generated: The interest generated by the collateral (staking rewards or RWA returns) is distributed to holders or pledgers through modules such as savings interest rates.

Algorithmic or hybrid stablecoins:

Revenue mechanism: Algorithmically adjusts supply (minting/burning) according to demand to maintain stability, and revenue comes from seigniorage (minting fees) or incentives (governance tokens).

For example: USDF (Falcon, a hybrid product whose income comes from perpetual futures), USDO (Avalon, combining algorithmic elements with RWA).

Income generation method: Dynamic adjustment creates arbitrage or reward opportunities, often amplified through DeFi integration such as staking and providing liquidity.

How benefits are generated: Dynamic adjustments create opportunities for arbitrage or rewards, and DeFi integrations (such as staking or liquidity provision) often amplify these opportunities.

Fiat-backed or centralized stablecoins (for comparison only):

Yield mechanism: Backed by legal currency or equivalent at 1:1, and income comes from reserves (treasury bonds).The underlying earnings are generally not distributed to users but are reserved for company use.

For example: USDC (Circle), USDT (Tether)

How income is generated: Earn low-risk interest from reserves, but with minimal decentralization.

risk indicators

Depeg Risk

A depeg occurs when a stablecoin is unable to maintain its predetermined $1 peg, typically due to extreme market pressure, a supply and demand imbalance, or a significant drop in the value of the underlying collateral.This risk is inherent to the stablecoin model, as they rely on economic incentives, algorithmic mechanisms, or reserves that may fail during a cryptocurrency market crash or broader financial turmoil.Collateralized stablecoins can unanchor when reserves are low or liquidity is low, while algorithmic stablecoins rely on fragile arbitrage mechanisms that can collapse under panic selling.

Other important additions:

• Types of decoupling mechanisms: There are many types of decoupling mechanisms, and it is crucial to distinguish between temporary decoupling (due to a short-term liquidity crunch) and permanent decoupling (a death spiral in an undercollateralized system).Metrics to monitor include peg deviation rate (tracking how often price deviates by ±0.5% over a 24-hour period), reserve ratio transparency through on-chain auditing, and redemption speed during stress tests.

• Market contagion effect: The decoupling of one stablecoin could trigger a chain reaction throughout the DeFi ecosystem (similar to a “bank run”), as stablecoins are often used as collateral in lending protocols, amplifying losses.

• Mitigation strategies: Regularly auditing reserves, maintaining an overcollateralization ratio above 100%, and hybrid models that combine fiat backing with algorithmic adjustments can all reduce risk.However, even having a well-stocked stablecoin is not completely immune.For example, during periods of severe market volatility, arbitrageurs may delay trading due to high gas fees or network congestion.

• Latest Developments: As adoption increases, decoupling risks are being monitored through forecast models that use factors such as collateral volatility, issuance, and macroeconomic indicators (changes in interest rates that affect Treasury-backed reserves) through 2025.

Typical events: TerraUSD (UST) decoupled in May 2022 and plummeted from $1 to nearly 0, causing algorithm failure + market panic, triggering the collapse of the over $40 billion ecosystem.

Smart contract vulnerability

Code holes or exploits in the protocol can lead to hacking or data loss.The longer a stable protocol runs, the more resistant it is to these vulnerabilities.Newer protocols face higher smart contract risks (which have not been field-tested).

Smart contracts are the skeleton of stablecoin protocols, but they may contain code loopholes, logic flaws, or weaknesses that can be exploited, leading to unauthorized access, loss of funds, or protocol failure.Mature protocols that have been battle-tested usually perform better due to multiple audits and real-world application experience, while new protocols face higher risks due to unverified code.

Other important additions:

• Auditing and testing practices: Emphasis on identifying issues before and after product release through multiple independent audits (e.g., using tools like Quantstamp or Trail of Bits), formal verification tools, and an ongoing bug bounty program.Metrics include the number of audits, the time since the last major update, and historical attacks.

• Oracle dependency: Reliance on external data sources (oracles) for collateral pricing can lead to manipulation.For example, a flash loan attack could temporarily distort prices and trigger unnecessary liquidations (thus causing a temporary decoupling).

• Ecosystem-wide impact: Vulnerabilities do not exist in isolation.A hack of one protocol could affect all stablecoins integrated with it, triggering a cascading liquidation of the entire stablecoin protocol (because they support each other/use similar collateral), leading to a collapse of trust and decreased adoption.This is the case when the SVB thunderstorm caused USDC to temporarily decouple, thereby affecting the entire DeFi ecosystem.

Typical incident: The Ronin Network hack in March 2022, in which attackers exploited vulnerabilities to steal $620 million worth of ETH and USDC from the Axie Infinity bridge.

regulatory risk

Stablecoins face increasing government scrutiny regarding anti-money laundering (AML), know-your-customer (KYC) requirements, security classification, and fiat-backed transparency.This could lead to operational restrictions, asset freezes or even outright bans, especially for stablecoins that integrate real-world assets (RWA) or conduct international operations.These risks are amplified in jurisdictions where cryptocurrency policy is constantly changing, affecting its global availability.

Other important additions:

• Global regulatory differences: In the European Union, Markets in Crypto-Assets (MiCA) regulations require stablecoin issuers to hold reserves with licensed banks and maintain liquidity buffers, while the United States focuses on classifying some stablecoins as securities and subject to regulation by the U.S. Securities and Exchange Commission (SEC).Emerging markets may impose capital controls to restrict cross-border capital flows.Protocols must adhere to relevant regulations in order to interact with citizens, which adds to the complexity of their development.In addition, the agreement must choose a jurisdiction for legal development, and the EU is not the first choice…

• Compliance Metrics: Track issuer license status, reserve reporting frequency, and association with sanctioned entities.Non-compliance can lead to delisting by exchanges, thereby losing trust and user base.

• Geopolitical factors: Stablecoins pegged to the U.S. dollar face risks from changes in U.S. policy, such as export controls on technology products or expanded sanctions on cryptocurrency entities.Stablecoins are mostly pegged to the US dollar, but what will happen if the US collapses or loses financial influence in Asia or the EU?It occurred to me that the Swiss franc is a pretty strong currency!Developing a stablecoin backed by one of the most stable countries may allow for diversification, increased trust, and FX swaps.

• Positive side: Regulation can enhance legitimacy, but over-regulation can stifle innovation and force users to turn to unregulated alternatives.

Typical events: In August 2022, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) imposed sanctions on Tornado Cash, blacklisting its address, prohibiting U.S. citizens from interacting with it, and freezing $437 million in assets.

Liquidity risk

Liquidity risk arises when users are unable to buy and sell stablecoins without incurring significant price slippage, which is exacerbated in markets with thin trading volumes, during times of panic, or on exchanges with low trading volumes.Established stablecoins with high total value locked (TVL) and deep liquidity pools tend to perform better because long-term presence builds network effects and reduces slippage.

Other important additions:

• Metrics: Use on-chain data such as TVL (DefiLlama), 24-hour trading volume to market cap ratio, and slippage rates on major decentralized exchanges (DEX) during peak volatility.A healthy ratio is 5-10% of daily trading volume exceeding circulating supply.

• Market depth issues: In a bear market, redemptions may exceed new liquidity reserves, thereby depleting liquidity reserves.

• Chain Liquidations: Similar to a bank run (I repeat), massive withdrawals can create a self-fulfilling prophecy, making a perceived lack of liquidity a reality.

• Improvements: Integration with automated market makers (AMMs) and liquidity incentives (liquidity mining rewards, Merkl, Turtle) can increase resilience, but overreliance on incentives can cause artificial liquidity to disappear in a crisis.

Typical event: FTX crashed in November 2022, causing an $8 billion liquidity shortage, halting withdrawals, and leading to bankruptcy amid massive outflows.

counterparty risk

Stablecoins often rely on third parties, such as custodians responsible for RWA, oracles responsible for price data, or cross-chain bridges responsible for cross-chain functionality, which can lead to problems such as insolvency, fraud, or operational errors, thereby creating points of failure.

Other important additions:

• Custodian and oracle failure: Custodians can default, and oracles (such as Chainlink) can provide inaccurate data during network issues, leading to mispricing of collateral.

• Evaluation Metrics: Evaluate the custodian’s diversity, insurance coverage, and oracle decentralization.The high degree of centralization of APIs may increase risk.For example, CURVE’s crvUSD maintains the accuracy of its oracle prices based on multiple stable data sources.

• Interdependencies: In tokenized assets, counterparty chains can amplify problems; for example, a hack in the linked protocol could freeze stablecoin redemptions.

• Legal protection: Holders may be considered unsecured creditors in bankruptcy proceedings and have little ability to recover any assets; this highlights the need for diversified reserves.In my chart, you’ll notice that some stablecoins rely on some kind of collateral that they don’t even physically keep (the collateral is usually short-term Treasury bills, so the risk of default is next to zero).Other protocols may be overly reliant on ETH-LST, BTC-LST, or SOL-LST, which is particularly concerning for yield volatility.

Typical events: Celsius Network went bankrupt in June 2022, freezing $4.7 billion in user funds due to bad investments and counterparty defaults.

return volatility

Stablecoin yields, usually derived from lending agreements or treasury bond investments, fluctuate with market conditions, lending needs and interest rates, reducing predictability for users seeking stable passive income.

Other important additions:

• Contributing factors: In a low-volatility environment, yields fall due to less borrowing; during a bull market, yields rise.Another yield factor relevant to RWA is external interest rates (such as the federal funds rate).

• Risk Indicators: Monitoring historical yield ranges, correlations with the Cryptocurrency Volatility Index (CVIX), and protocol utilization are key to predicting potential yield swings and closing positions early (a loan-to-debit ratio above 80% indicates higher yields, but also carries risks).

• Sustainability considerations: High yields may signal potential risks such as excessive leverage.Sustainable models prioritize delta-neutral strategies to minimize directional risk exposure, such as Ethena, which explains some of their success.

• User impact: Volatility may result in opportunity costs, and users may miss out on higher yields elsewhere, or may suffer from inflation if yields are below the statutory savings rate.

Typical events: In the crypto winter of 2022, Aave/Compound earnings fell from 10%+ to less than 2% as borrowing demand dried up.

Sky Dashboard Indicators

Unique risks: Smart contract vulnerabilities (due to complex lending modules), regulatory risks (RWA exposure to U.S. government-backed securities will be subject to scrutiny), yield volatility (dynamic savings rates may decline).

GHO Dashboard Metrics

Unique risks: Fragility of the lending mechanism (over-collateralization may lead to cascading liquidations), failure to generate income (if borrowing demand declines, the rate of return will drop to zero).

USR Dashboard Metrics

Unique risks: undercollateralization risk (if RWA depreciates), liquidation threshold (high volatility of underlying ETH/BTC), security module failure (insurance-like buffers may be insufficient).

Dinero Dashboard Metrics

Unique Risks: Unlike fully overcollateralized tokens, the return on staking rewards is automatically compounded, making it vulnerable to Ethereum penalty events or periods of low returns.

crvUSD Dashboard Metrics

Unique risks: crvUSD’s CDP model (healthy ratio 150-167%, backed by BTC/ETH LST) focuses on lending, so during periods of market volatility, cascading liquidation risk becomes a major risk, and fee returns, while flexible, are typically higher than the 3.5% annualized yield (APY).

Falcon Dashboard Metrics

Unique risks:Market volatility in the underlying asset (futures can result in rapid losses), regulatory compliance issues (as a currency linked to PPI), counterparty risk on the exchange.

Angleanalysis

Unique Risks: USDA’s conversion goal is to prevent de-anchoring by allowing minting/burning with limited fees (1 million TVL is equivalent to $1 billion), but this introduces autonomy risks such as governance being allowed to proceed without intervention, making it vulnerable to hacks or collateral failures, with its 85% steakUSDC backing.

Coinshift Analysis

Unique risks: csUSD’s three-party market (holders, generators, re-hypothecaters) makes it unique through revenue rebasing (from Treasury bonds/LST), but there is also the risk of balance changes, leading to compatibility issues with DeFi protocols.

Avalon Analysis

Unique Risks: USDA’s fixed borrowing rate (8%) and Bitcoin-collateralized CDP model (earning more than 5% annual yield) expose it to the risk of Bitcoin price fluctuations, unlike diversified collateral, and there is no mention of over-collateralization buffers.

USDai Analysis

Unique risks: GPU CDP collateral is illiquid assets.

Ethena (USDe) Analysis

Unique risks: sharp rise in interest rates (futures positions may lose value), fluctuations in financing rates (negative interest rates will erode yields), perpetual futures risks (market crash leading to liquidation).

Usual Analysis

Specific Risks: Hosting Specific Risks (RWA managed by Hashnote).

Frax analysis

Unique risk: Mixed mechanisms will exacerbate the failure of the linking mechanism in economic transformation.

Paxos Transparency Report

Cap(cUSD)

Unique Risks: cUSD’s emphasis on decentralization, yield generation, and risk segregation through a three-party market (holders, generators, rehypothecaters) creates a unique penalty risk for rehypothecaters, with yields (8% annualized yield benchmark) contingent on the failure of loan protections.

Solana ecological status

Solana’s steady growth is starting to gain momentum as rumors continue about Solana launching an ETF.

Solana transfers on the chainRanked among the top five in terms of account volume

Solana’s active stablecoin address

Some noteworthy native stablecoins are emerging (such as Jupiter’s jupUSD, Solstice’s USX, and Hylo’s hyUSD).They all have clever algorithmic mechanisms to maintain stable anchoring.Worth paying attention to.

Conclusion

Sometimes the yield and the value of the collateral do not match. Terra Luna is an example. The annual yield is stable at around 20%, but the income is obviously low.Pay close attention to the correlation between yields and collateral values, which is often a source of suspicion.

For example, our friends here made an interesting point about USD stablecoins:

USDai has issued an announcement on the matter, suggesting that GPU loans will be delayed.There is a gap between borrowers looking to acquire USDai and lenders struggling to deliver collateral.News report: “NVIDIA B200 graphics card stuck at French customs after leaving Taiwan.”

Hope you guys enjoyed this content.I always believe that DeFi will one day become the core driving force driving the entire financial system.I will continue to share strategies, concepts, and those protocols that are truly innovative.