DeFi is paying big to accumulate USDC

Circle issues USDC, the world’s second-largest stablecoin, but guarantees only $1 of value to tokenholders without any yield whatsoever.

Nevertheless, operators of so-called decentralized finance (DeFi) protocols are willing to pay curiously high interest rates to anyone who deposits that 0% interest-bearing stablecoin into their platform.

Indeed, a new law enacted by the GENIUS Act expressly forbids any interest payments by Circle to USDC holders. Instead, holders venture elsewhere — far away from the safety of Circle’s New York City headquarters — to earn annual percentage returns (APRs) of 59% or beyond.

Before understanding the mechanics of these outlandish payouts, however, a newcomer to yield farming must understand the value of USDC beyond its intrinsic $1 peg.

DeFi insiders understand that Circle and its larger competitor Tether are in many ways the rulers of blockchains themselves.

When Ethereum was considering a hard fork before its merge to proof-of-stake (PoS), stablecoin issuers were widely understood to control the deciding vote on which fork would retain Ethereum DeFi activity and probably the ETH ticker symbol itself.

DeFi needs stablecoins because they rule the blockchains

Unlike a blockchain like Ethereum which can fork off Ethereum Classic and retain the value of both ETH and ETC, stablecoins cannot fork.

There is only $1 worth of US Treasuries backing 1 USDC, and those Treasuries do not magically duplicate if a blockchain decides to fork.

Stated plainly, stablecoins are the kingmakers of blockchains because they are by far the most popular crypto assets by on-chain activity.

Indeed, more stablecoin transactions occur daily than in the next 20 largest crypto assets combined.

Tether and Circle publish the specific blockchains they support for native issuance, and earning support for any additional blockchain is as enviable as it is difficult.