Author: Thor Hartvigsen Source: One Chain Times Translation: Shan Ouba, Golden Finance

Introduction

The excitement around airdrop farming has waned as new tokens have been launched at more modest but potentially more realistic valuations. As a result, it is no longer possible to earn 40%+ annualized returns through stablecoins, for example on Pendle or various lending markets. As a personally more conservative investor, I prefer to keep part of my portfolio in stablecoins, and last week I asked on X about the best stablecoin farms on the market. I received over 150 responses, as well as contacts from multiple teams who explained the high returns that can be obtained through their products.

After researching these different strategies over the past week, this report attempts to present the best places to earn stablecoins (and structured stablecoin-like products).

JLP

JLP is not a stablecoin. In fact, it is not at all. It is a structured product similar to GMX's GLP, which was very popular in 2022/23. However, among the many strategies I have examined, JLP stands out the most and requires a deeper analysis.

JLP is a structured product launched by the Jupiter exchange on Solana. Among other things, Jupiter offers perpetual futures trading on BTC, ETH, and SOL with up to 100x leverage, and JLP acts as liquidity and counterparty for these traders. JLP is composed of a basket of assets, as shown below.

For every $1 of JLP you buy, you actually buy:

• $0.454 SOL

• $0.0963 ETH

• $0.092 Bitcoin

• $0.2647 USD

• $0.0933 USD

Therefore, the price of JLP depends first on the price of the underlying assets. If BTC, SOL, and ETH appreciate, JLP will also appreciate, but to a lesser extent because it contains about 35% stablecoins, and vice versa. More specifically, the price of JLP depends on three factors:

1. The price of the underlying asset (BTC, ETH, SOL, USDC, and USDT)

2. The fees paid by traders

3. The trader's profit and loss

75% of all fees incurred by traders on perpetual contracts go into the JLP vault. This is equivalent to 50% APY on current fee levels and accumulates through JLP price appreciation. Finally, JLP acts as a counterparty to Jupiter traders. If the trader is profitable, the gains are paid out from the JLP vault, and if the trader is losing, the losses are added to the vault. The chart below shows the price of JLP since the beginning of the year.

It is worth noting that JLP has risen from $1.78 to $3.25 this year alone, due to the appreciation of the underlying assets and the large fees charged by traders. This is a 61.28% increase with very small declines, similar to a chart that has almost only risen but not fallen. A 61.28% ROI YTD equates to an annualized return of 106.5%, far exceeding any type of stablecoin product. However, it is a bit dishonest to compare it to a stablecoin strategy, as JLP only contains a 35% stablecoin component. Holding JLP instead of farming with stablecoins requires taking on more risk (e.g., trader's PnL exposure) and volatility of the underlying assets.

But how does JLP perform compared to BTC, ETH, and SOL? As shown in the figure below, JLP has outperformed BTC and ETH so far this year, but not SOL.

But is JLP safer than going long SOL directly? To analyze further, we can compare JLP’s returns to BTC, ETH, and SOL on a volatility (risk) adjusted basis.

By calculating the YTD price performance of these assets, subtracting the risk-free rate, and dividing by their volatility, we get a risk-adjusted return metric, the Sharpe ratio (volatility-adjusted return). The higher this number, the better the investment. As the table shows, JLP has significantly outperformed on a volatility-adjusted basis YTD due to its much less volatile investment than just holding BTC, ETH, or SOL.Note that past performance is not indicative of future performance, but it is still interesting.

However, volatility-adjusted returns are not the same as risk-adjusted returns, as JLP incorporates risk vectors other than just volatility. When holding JLP, you are exposed to smart contract risk, and the price could also be negatively affected if traders become extremely profitable (partially draining JLP funds). Since there are no long-tail assets to trade on Jupiter, there is little risk of price manipulation, and the likelihood of an event like AVAX, when GLP was partially drained, is low.

Nevertheless, we can examine the overall performance of traders on Jupiter to try to quantify JLP counterparty risk. The chart below shows the net profit and loss of Jupiter traders over the past three months.

It is worth noting that traders have remained net profitable over the past three months, with cumulative gains of $6.85 million. This effectively means that $6.85 million from the JLP coffers has been paid to traders, negatively impacting their performance. Despite this, JLP's performance remains strong due to the high fees paid by traders at the same time.

What is more interesting is that there seems to be a high correlation between the cumulative traders PnL on Jupiter and the price of SOL, as shown below.

This shows that SOL is the most traded asset on Jupiter perps, which is confirmed by the 24h trading volume: $139m for BTC, $80m for ETH and $633m for SOL (74.3% of total volume). At the same time, this also shows that the open interest is biased towards the long side, i.e. most traders are long rather than short.

To summarize, in the case of a sharp increase in SOL, traders may take profits, which will have a negative impact on JLP price. But at the same time, SOL appreciation has a positive impact on JLP, so it is a hedge to some extent. It is important to remember that this is not a stablecoin strategy, as you have SOL, BTC and ETH exposure. If you are bearish on SOL, this may not be suitable for you. Finally, another risk of this asset is the smart contract risk and the risk of Jupiter exploits.

2 Syrup

Syrup is a protocol built on top of Maple Finance's RWA lending market. On Syrup, depositors can earn TradFi yields in a transparent way by providing overcollateralized loans to institutions. USDC depositors on Syrup earn 16-20% annualized returns, which are paid by institutional borrowers.

Currently, there is $41.5 million in TVL (USDC) deposited by users, which is loaned to institutions. These institutions have invested $26 million in collateral (SOL, PT-sUSDe, and BTC) and have borrowed $14.9 million. The yield provided to USDC lenders comes from the yield on institutional collateral (7.5% APY) and the USDC borrowing rate (9.34% APY). All of this can be seen in the figure below.

In addition, Syrup also provides "points" to lenders, and it is rumored that it will launch a token later this year. Locking USDC can multiply the points obtained, but the risk will also increase.

3 Additional Yields

PYUSD

PYUSD is a stablecoin issued by Paypal, and its supply has grown to over 600 million. Paypal is currently offering large rewards to PYUSD depositors on Kamino Finance. The yield is about 20% APY.

Morpho

Morpho is a decentralized and permissionless lending market with so-called "curators" who are able to drive the development of markets and strategies. USDC lenders on curator markets such as Gauntlet and Steakhouse have received quite generous yields, especially when considering $MORPHO rewards.

Usual

Usual recently launched RWA-backed stablecoins USD0 and USD0++. Holding USD0++ earns RWA collateral yields as well as "pills" (points). The first campaign went live recently and will run for 99 days. Like Ethena, Usual has integrated its stablecoin into various protocols, which provides multiple ways to earn extra points ahead of the airdrop. Please

Conclusion

So, can you outperform the market simply by mining stablecoins? In average market conditions, probably not (perhaps only if the market falls sharply). But earning a high yield from an idle part of your portfolio can provide huge additional returns (while keeping in mind that these strategies are risky).

JLP is particularly interesting. Although it is not a stablecoin, but a structured product, it has outperformed the market while being less volatile. If SOL remains strong for the rest of the year and JLP continues to charge high fees, it may continue to perform strongly.