Stablecoins that can be spent and earned require clearer classification.

Author: jacek

Compiled by: Shenchao TechFlow

Not all stablecoins are the same. In fact, stablecoins have two main core uses:

Transfer funds → Payment-type stablecoin

Value-Added Funds → Yield-Generating Stablecoins

This simple distinction is not exhaustive, but it is very useful and can provide inspiration for many people. 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 collateral types, pegging mechanisms, degree of decentralization, or regulatory status) are still important, but they often do not directly reflect the actual needs of users.

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 two types of stablecoins together (as many data dashboards do) is like depositing your salary into a hedge fund: technically feasible, but logically unreasonable.

Of course, the boundaries between the two are not always clear. Stablecoins can play both payment and yield roles, and each design carries its own risks. Here, I focus on the primary use cases for users and further refine this distinction, making it no longer overly simplistic:

Payment Priority Stablecoin: Aims to maintain its peg as much as possible, with the goal of instant payments and low-cost settlements; typically, the yields are retained by the issuer; still allows for yield operations in the lending market; optimized for simplicity and ease of use.

Yield Priority Stablecoins: Still aiming to maintain the peg, but typically pass on the returns from specific yield strategies to holders; usually used for holding rather than spending; designed in various and complex forms.

As mentioned, stablecoins can switch between payment and yield roles. However, the distinction between payment and yield can help achieve a smarter user experience, a clearer regulatory framework, and more convenient adoption. While it is generally the same pegging mechanism, the 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 begun to reflect this distinction, such as the "payment stablecoins" mentioned in the U.S. GENIUS Act. Builders are also practicing this idea; for example, the SkyEcosystem project I have been involved with for a long time separates USDS (consumption/payment) from sUSDS (yield).

So, what can the division of payment and earnings bring us?

A more complete risk framework

The risk assessment of yield-bearing stablecoins should focus on: the source of returns and its health status, strategy concentration, redemption/exit risks, the resilience of the peg mechanism, leverage usage, protocol risk exposure, etc. On the other hand, payment stablecoins need to pay more attention to peg stability, market depth and liquidity, redemption mechanisms, reserve quality and transparency, as well as the risks of the issuer. A unified risk assessment metric cannot be applied to all types of stablecoins.

The popularity of the retail market

This distinction between payment and yield aligns with the thinking model of traditional finance (TradFi), which can reduce user confusion and operational errors. New users should not hold complex yield-bearing tokens without being informed.

Better user experience (UX)

Wallet service providers should avoid conflating payment and yield-bearing stablecoins to prevent user confusion. This distinction will unlock a simpler and smarter wallet user experience. While seasoned users are well aware of the differences, clear labeling in the user interface can help newcomers understand. This improvement will also streamline the integration for new banks (neobanks) and other fintech companies. Of course, the real user experience challenge lies not just in labeling, but also in how to educate users about tail risks.

Institutional market adoption

The distinction between payment and income is consistent with existing financial classifications, which helps improve accounting treatment, risk isolation, and supports a clearer regulatory framework.

Clearer regulation

Payment and yield stablecoins will be subject to different regulations. These two types of products have different risk characteristics, so regulators will naturally distinguish between them. Payment and investment (in the broad sense of securities) almost always fall under completely different regulatory regimes worldwide. This is not a coincidence. Legislators have been working in this direction: for example, the U.S. GENIUS Act and the EU MiCAR Regulation acknowledge this. This does not mean that payment stablecoins can never provide yields (as discussed in the GENIUS Act), but their role is closer to that of a savings account, rather than a broad investment product.

Not a perfect model, but the simplest direction guide.

Although this framework is not yet perfect, it is the simplest way to position products, users, and policies around a purpose.

Some shortcomings:

Yield is a complex category that encompasses various subcategories. Yield-bearing stablecoins cover multiple subtypes, each with different structures, risks, and uses. Some are involved in DeFi lending, some stake ETH, and others purchase government bonds. This is a vast concept that may evolve as the market matures, especially with regulatory intervention. In the future, the concept of "yield-bearing stablecoins" may be broken down into more specific and clear categories.

Issue of profit attribution: If the profits are not passed on to users, then these profits are typically obtained by other participants (usually the issuer). As mentioned earlier, stablecoins can shift from "issuer profits" to "holder profits." Additionally, stablecoin users can also earn profits through lending markets, and it is currently uncertain whether yield-bearing stablecoins are sufficiently distinct from other secondary sources of income from the user's perspective.

Naming Controversy: Some people believe that this broader category should be referred to as "yield tokens" rather than "yield stablecoins." This viewpoint is reasonable, but in reality, yield stablecoins have emerged as a distinct subcategory characterized by stable anchoring mechanisms and specific user roles. They are often seen as an independent category different from tokenized real-world assets (RWAs), liquid staking tokens (LSTs), or other structured yield products in DeFi. As the market evolves, this trend may continue to develop, especially when it comes to yield stablecoins with adjustable supply, where the boundaries often become blurred.

Payment stablecoins may also offer yields: in the future, this boundary may be defined by regulation. For example, the MiCAR regulation prohibits payment stablecoins from offering yields, while the GENIUS Act debates this. The market will adjust accordingly based on the regulatory framework.

These concerns do exist. However, treating "stablecoins" as a single category does not help to address the issues. The distinction between payment-type and yield-type is a fundamental framework that should have been raised earlier. We should clearly label this division and build around it. If your stablecoin cannot be easily categorized into one of these two types, it should also be clearly stated.

More research is still necessary, especially for assets with ambiguous boundaries (such as adjustable supply tokens) or assets that are completely outside of this framework (such as non-stable yield tokens and tokenized real-world assets).