The Need for Clearer Classification of Usable and Profitable Stablecoins
Not all stablecoins are the same. In fact, stablecoins primarily have two core purposes:
Transfer of funds → Payment stablecoins
Value appreciation → Yield stablecoins
This simple distinction is not exhaustive, but it is very useful and can inspire many. This classification should guide our thinking when promoting adoption, optimizing user experience, formulating regulatory policies, and designing use cases.
Of course, other more complex classification methods (such as by type of collateral, anchoring mechanism, degree of decentralization, or regulatory status) remain important, but they often fail to directly reflect users’ actual needs.
Stablecoins are widely regarded as a breakthrough application in the crypto space, but to achieve scalable development, we need a more user-centric framework. You wouldn’t use funds from a yield vault to buy coffee, would you? Grouping the two types of stablecoins into one category (as many data dashboards do) is like depositing your salary into a hedge fund: technically feasible but logically unreasonable.
Of course, the line between the two is not always clear. Stablecoins can play both payment and yield roles, and each design comes with its own risks. Here, I focus on the primary uses for users and further refine this distinction to avoid oversimplification:
Payment-priority stablecoins:
Aim to maintain anchoring as much as possible, targeting immediate payments and low-cost settlements; typically, yields are left to the issuer; still usable for yield operations in lending markets; optimized for simplicity and ease of use.
Yield-priority stablecoins:
Still aim to maintain anchoring, but typically pass on the yields from specific yield strategies to holders; usually used for holding rather than consumption; diverse and complex in design.
As mentioned, stablecoins can switch between payment and yield roles. However, the distinction between payment and yield can help achieve a smarter user experience, clearer regulatory frameworks, and easier adoption. Although it often employs the same anchoring mechanism (usually so), its uses are entirely different.
This simple framework adopts a market-driven perspective, starting from how people actually use stablecoins rather than from code or regulations. Regulators have already begun to reflect this division, such as the “payment stablecoins” mentioned in the U.S. GENIUS Act. Builders are also practicing this concept; for example, the SkyEcosystem project I have long participated in separates USDS (consumption/payment) from sUSDS (yield).
So, what can the distinction between payment and yield bring us?
A more complete risk framework
The risk assessment of yield stablecoins should focus on: sources of yield and their health, strategy concentration, redemption/exit risks, resilience of the anchoring mechanism, leverage usage, and protocol risk exposure, among others. Payment stablecoins, on the other hand, need to pay more attention to anchoring stability, market depth and liquidity, redemption mechanisms, quality and transparency of reserves, and the risks associated with the issuer. A unified risk assessment metric cannot be applied to all types of stablecoins.
Wider retail market adoption
This distinction between payment and yield aligns with the traditional finance (TradFi) thinking model, reducing user confusion and operational errors. New users should not hold complex yield tokens without knowledge.
Enhanced user experience (UX)
Service providers like wallets should avoid conflating payment and yield stablecoins, which could confuse users. This distinction will unlock a simpler and smarter wallet user experience. While seasoned users understand the differences, clear labeling in the user interface can help newcomers comprehend.
This improvement will also simplify integration for new banks (neobanks) and other fintech companies. Of course, the real user experience challenge is not just labeling but also how to educate users about tail risks.
Institutional market adoption
The distinction between payment and yield is consistent with existing financial classifications, which helps improve accounting treatment, risk isolation, and supports clearer regulatory frameworks.
Clearer regulation
Payment and yield stablecoins will be subject to different regulations. These two categories of products have different risk characteristics, so regulators will naturally differentiate between them. Payment and investment (broadly defined as securities) almost always fall under completely different regulatory regimes globally. This is not a coincidence.
Legislators are already making efforts in this direction: for instance, the U.S. GENIUS Act and the EU MiCAR Regulation acknowledge this point. This does not mean that payment stablecoins can never offer yields (as discussed in the GENIUS Act), but their role is closer to that of savings accounts rather than broad investment products.
Not a perfect model, but the simplest directional guide
Although this framework is not perfect, it is the simplest way to position products, users, and policies around purpose.
Some shortcomings:
Yield is a complex category that encompasses multiple subcategories.
Yield stablecoins cover various subtypes, differing in structure, risks, and uses. Some earn through DeFi lending, some stake ETH, and others buy government bonds.
This is a vast concept that may change as the market matures, especially with regulatory intervention. In the future, the concept of “yield stablecoins” may be subdivided into more specific and clear categories.
The issue of yield attribution:
If yields are not passed on to users, then they are typically gained by other participants (often the issuer). As mentioned earlier, stablecoins can shift from “issuer yield” to “holder yield.”
Moreover, stablecoin users can also earn yields through the lending market, and it remains uncertain whether yield stablecoins are sufficiently distinct from other secondary yield sources from the user’s perspective.
Nomenclature controversy:
Some argue that this broader category should be called “yield tokens” rather than “yield stablecoins.”
This viewpoint is reasonable, but in reality, yield stablecoins have emerged as a unique subclass characterized by stable anchoring mechanisms and specific user roles.
They are often viewed as an independent category distinct from tokenized real-world assets (RWAs), liquid staking tokens (LSTs), or other DeFi structured yield products. As the market develops, this trend may continue to evolve, especially when it comes to yield stablecoins with adjustable supply, where the boundaries often become blurred.
Payment stablecoins may also provide yields:
In the future, this boundary may be defined by regulations. For example, the MiCAR Regulation prohibits payment stablecoins from providing yields, while the GENIUS Act debates this issue. The market will adjust accordingly based on the regulatory framework.
These concerns are indeed present. However, viewing “stablecoins” generically as a single category does not help solve the problem. The distinction between payment and yield is a foundational framework that should have been proposed earlier. We should clearly label this division and build around it. If your stablecoin cannot easily fit into one of these two categories, it should be explicitly stated.
Further research is still necessary, especially for assets with blurred boundaries (such as tokens with adjustable supply) or assets that completely fall outside this framework (such as non-stable yield tokens and tokenized real-world assets).
This article is collaboratively reprinted from: Deep Tide