Stablecoin yield strategies carry asymmetric risks, as lending and leveraged token accumulation are fundamentally different activities. In a hypothetical $10,000 strategy involving borrowing to buy more tokens, rising borrowing costs can erode principal to $9,400 after one year—even if every token maintains its $1 peg.
The analysis highlights that stablecoin yields are not uniform: lending collateralized positions exposes participants to interest rate risk on the borrowing side, distinct from simple deposit returns. Even in a scenario where no depegging occurs, compounding borrowing costs can produce net losses for leveraged yield farmers.
Stablecoin Yield Strategies Face Hidden Risks as Borrowing Costs Erode Returns
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