Yield-Bearing Stablecoins Are Eating DeFi Collateral—What Happens to Native Token Utility?

General
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The yield-bearing stablecoin market doubled in 12 months—from $9.5B (early 2025) to over $20B today, on track for $50B by year-end. sUSDe sits at $3.47B market cap paying 4.3% APY, sUSDS at $4.58B with 4.25% yields. These aren’t experiments anymore—they’re becoming DeFi’s default collateral.

Question: If yield-bearing stablecoins offer yield + stability + liquidity in one asset, what’s the point of holding ETH, SOL, or governance tokens?

The Triple-Point Asset

Yield-bearing stablecoins satisfy three money use cases simultaneously:

  1. Store of value: 4-6% yield, dollar peg, no 30% weekly drops
  2. Medium of exchange: Stable $1 price, no conversion friction
  3. Unit of account: Already dollar-denominated

If one asset does all three, what’s left for native tokens? Gas fees and staking—but is that enough to justify current valuations?

The Market Is Voting

From a trader’s perspective, capital flows are clear: money moves to better products. And yield-bearing stables are objectively better products for most DeFi use cases than volatile native assets.

ETH LSTs grew 6M → 16M tokens (+$34B notional). SOL staking doubled (+$10B). So staking demand exists. But here’s the data that matters:

  • Morpho V2 integrating fixed-rate lending for yield-bearing collateral (institutions won’t touch variable rates)
  • Aave V4 targeting $1B in RWA collateral via hub-and-spoke architecture (mostly stables)
  • Major protocols racing to integrate yield-bearing stables as primary collateral

Builders are following user demand. Users want yield + stability + liquidity. Native token “store of value” narrative was always weak (volatility = opposite of store of value).

The Uncomfortable Truth

Maybe crypto’s real innovation WAS creating efficient USD-denominated digital money (stablecoins), not new currencies (BTC/ETH/SOL).

Think about it:

  • DeFi TVL increasingly denominated in stables
  • DAO treasuries shifting to stable holdings
  • Users transact in stables, hold stables, earn yield on stables
  • Native tokens needed for… gas and network security

If 90% of economic activity happens in yield-bearing stables, with native tokens as “infrastructure layer,” did we accidentally prove that the dollar wins even in crypto?

Historical Precedent: Infrastructure vs Monetary Assets

Is there precedent for “infrastructure assets” maintaining high valuations when separated from user-facing utility?

  • TCP/IP: Essential infrastructure, zero tradable value
  • AWS compute: Infrastructure with market value, but as services not assets
  • Domain names: Scarce infrastructure, but .com valuations tiny vs applications

I can’t find a clean analog for “ETH as pure infrastructure asset” maintaining current market cap. Maybe it exists, but the burden of proof is on native token bulls.

What Should Protocols Do?

Embrace: Integrate yield-bearing stables as primary products, accept native tokens as infrastructure assets (gas + security), prioritize capital efficiency and user demand.

Resist: Find new native token utility beyond gas/staking, argue decentralization/censorship-resistance justifies volatility, double down on native tokens as monetary primitives.

My take: Protocols should build what users want, not what we wish they wanted. The market is speaking—yield-bearing stables are winning because they’re better products. Fighting that is swimming against the tide.

The Centralization Risk Nobody’s Talking About

But here’s the counterpoint I can’t ignore: if sUSDe becomes 50% of DeFi collateral, the entire ecosystem depends on Ethena’s delta-neutral strategy working. If sUSDS dominates, we’re all exposed to Sky Protocol governance risks. If BUIDL is the reserve asset, we’re dependent on BlackRock.

DeFi was supposed to be decentralized. Yield-bearing stables from centralized issuers defeat the purpose. Native tokens maintain value BECAUSE they’re permissionless and censorship-resistant.

So maybe the answer isn’t “yield-bearing stables vs native tokens.” Maybe it’s: efficient but centralized (stables) vs inefficient but robust (native tokens).

What Do You Think?

From a trading/analysis perspective, I’m bullish on yield-bearing stables (follow the capital flows). But from a first-principles perspective, I’m worried we’re rebuilding TradFi with extra steps.

Questions for the community:

  1. Can native tokens maintain valuations as “infrastructure only” assets?
  2. Should protocols embrace user demand (stables) or resist on principle (native tokens)?
  3. If yield-bearing stables dominate, is that progress or regression to dollar hegemony?

The numbers say this is already happening. The question is whether it’s inevitable evolution or a mistake we’ll regret.

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This is such an important discussion, Chris. From a UX perspective, yield-bearing stables are honestly a game-changer for users. I’ve been working on integrating them into our DeFi protocol, and the difference is night and day.

Why Users Love Them (From What I’m Seeing)

At our protocol, we’ve noticed:

  • No constant fund shuffling: Users deposit once, yields auto-compound, done. Compare that to manually moving between lending protocols, yield farms, etc.
  • Less mental overhead: When everything’s denominated in dollars, users don’t need to constantly calculate “is my ETH collateral up or down this week?”
  • Lower IL risk: For liquidity providers, stable-stable pairs or stable-wrapped stable pairs have way less impermanent loss than ETH pairs

One of our users literally told me last week: “I finally understand what I’m doing because the numbers don’t change every 5 minutes.”

But I’m Worried About What This Means for ETH

Here’s where I’m genuinely uncertain: if sUSDe or sUSDS becomes the default collateral everywhere, does ETH lose its role as the “money lego” of DeFi?

Like, right now ETH is the base layer for most DeFi protocols—you provide ETH liquidity, use ETH as collateral, etc. But we’re already seeing users at our protocol asking to swap their ETH collateral for yield-bearing stables. The demand is real.

Maybe the answer is that ETH’s value proposition shifts entirely to:

  • Gas fees (you need ETH to transact)
  • Staking (you stake ETH for security)
  • L2 settlement (rollups settle to Ethereum)

And maybe that’s enough? I genuinely don’t know.

The TCP/IP Analogy Makes Me Nervous

Your TCP/IP comparison is interesting but also kind of scary. TCP/IP is essential infrastructure, but nobody “invests” in it—it’s a public good. If ETH becomes “just infrastructure” without user-facing monetary utility, does it maintain its valuation?

My optimistic take: Maybe both can coexist with distinct roles:

  • ETH/SOL: Infrastructure and security layer (gas, staking, settlement)
  • Yield-bearing stables: User-facing value layer (transactions, collateral, yields)

But I Don’t Know If That’s Sustainable

The problem is: if 90% of economic activity (by volume) happens in yield-bearing stables, and native tokens are “just” needed for gas and security… is there historical precedent for infrastructure assets maintaining high valuations when they’re separated from end-user utility?

Like, AWS instances are valuable but as services, not investment assets. Domain names are scarce but don’t command huge valuations compared to what’s built on them.

I want to believe ETH can maintain its value as “ultra-sound money” (the staking + burn narrative). But if users primarily hold and transact in yield-bearing stables, aren’t we just admitting that the dollar still wins even in crypto?

One More Concern: Centralization

You mentioned the centralization risk—and I think that’s actually the strongest counterargument. If sUSDe becomes 50% of DeFi collateral, we’re all betting on Ethena’s delta-neutral strategy. If sUSDS dominates, we’re exposed to Sky Protocol governance drama. If BUIDL is the reserve, we’re dependent on BlackRock.

That’s a LOT of centralized points of failure for an ecosystem that’s supposed to be decentralized.

So maybe the real question isn’t “yield-bearing stables vs native tokens” but: What’s the right balance between efficiency (stables) and robustness (native tokens)?

I lean toward pragmatic embrace because users clearly want this—but I’m still figuring out what happens to ETH’s value proposition if we go all-in on stables. Would love to hear from others, especially folks working on L2 infrastructure or protocol economics.