Stablecoins that can be spent and earned need clearer classification.

Distinguishing between payment and revenue can help achieve a smarter user experience, a clearer regulatory framework, and more convenient dissemination.

Written by: jacek

Compiled by: Deep Tide TechFlow

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

• Transfer funds → Payment stablecoin
• Appreciation Fund → Yield-bearing Stablecoin

This simple distinction is not comprehensive, 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 type, anchoring mechanism, 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, right? Categorizing two types of stablecoins as one (as many data dashboards do) is like depositing your salary into a hedge fund: technically feasible, but not very logical.

Of course, the boundary between the two is not always clear. Stablecoins can play both payment and yield roles, and each design has its own risks. Here, I focus on the primary use cases for users and further refine this distinction to avoid oversimplification:

Payment-Preference Stablecoins: Aim to maintain peg as much as possible, with a goal of instant payments and low-cost settlements; typically, yields are retained by the issuer; still can operate yield strategies in lending markets; optimized for simplicity and ease of use.

Yield-focused stablecoins: still aim to maintain 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 often the same pegging mechanism, the uses are completely different.

This simple framework adopts a market-driven perspective, starting from how people actually use stablecoins, rather than approaching it from code or regulations. Regulators have begun to reflect this distinction, such as the “payment stablecoin” mentioned in the U.S. “GENIUS Act”. Builders are also practicing this concept; for example, the SkyEcosystem project I have been involved in for a long time separates USDS (consumption/payment) from sUSDS (yield).

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

More Complete Risk Framework

The risk assessment of yield-generating stablecoins should focus on: the source of yield and its health, strategy concentration, redemption/exit risk, the resilience of the pegging mechanism, leverage usage, and protocol risk exposure, among others. 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 risk of the issuer. A unified risk assessment metric cannot be applied to all types of stablecoins.

The Popularization of the Retail Market

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

Better User Experience (UX)

Wallet and service providers should avoid conflating payment and yield stablecoins to prevent user confusion. This distinction will unlock a simpler and smarter wallet user experience. Although experienced users understand the difference between the two, clear labeling in the user interface can help newcomers grasp the concept. This improvement will also simplify integration for new banks (neobanks) and other fintech companies. Of course, the real user experience challenge is not only the labeling but also how to educate users about tail risks.

Adoption in the Institutional Market

The distinction between payments and revenues 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 globally. 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 yield (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 directional 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 involve DeFi lending, others stake ETH, and some 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 split into more specific and clearer categories.

Issue of Profit Attribution: If profits are not passed on to users, they are usually acquired by other participants (typically the issuer). As mentioned earlier, stablecoins can shift from “issuer profit” to “holder profit.” Additionally, stablecoin users can also earn profits through the lending market, and it remains uncertain whether yield-bearing stablecoins are sufficiently distinct from other secondary sources of income from the user’s perspective.

Naming Controversy: Some believe that this broader category should be referred to as “yield tokens” rather than “yield stablecoins.” This perspective 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 viewed as an independent category that is different from tokenized real-world assets (RWAs), liquid staking tokens (LSTs), or other DeFi structured yield products. As the market evolves, this trend may continue to change, particularly when it comes to yield stablecoins with adjustable supply, where the boundaries often become blurred.

Payment stablecoins may also provide 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 issue. The market will adjust accordingly based on the regulatory framework.

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

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