The distinction between payment and yield can help achieve a smarter user experience, a clearer regulatory framework, and more convenient adoption.

Author: jacek

Translated by: Deep Tide TechFlow

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

Transfer funds → Payment stablecoins

Increase value → Yield stablecoins

This simple distinction is not exhaustive, but it is very useful and can inspire many. 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 users' actual needs.

Stablecoins are widely regarded as a breakthrough application in the crypto space, but to achieve scalable development, we need a more user-centered framework. You wouldn’t use funds from a yield vault to buy coffee, would you? Grouping the two types of stablecoins into one category (as many data dashboards do) is like depositing your salary into a hedge fund: technically feasible, but logically unreasonable.

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-focused stablecoins: Aim to maintain anchoring as much as possible, targeting instant payments and low-cost settlements; typically, yields are left to the issuer; can still engage in yield operations in lending markets; optimized for simplicity and ease of use.

Yield-focused stablecoins: Still aim to maintain anchoring, but typically pass on the yields 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 anchoring mechanism (usually), the uses are entirely different.

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

So, what can the distinction between payment and yield bring us?

A more comprehensive risk framework

Risk assessment for yield stablecoins should focus on: sources of yield and their health, strategy concentration, redemption/exit risks, resilience of the anchoring mechanism, leverage usage, protocol risk exposure, etc. Payment stablecoins, on the other hand, need to focus more on anchoring stability, market depth and liquidity, redemption mechanisms, reserve quality and transparency, as well as the risks of the issuer. A unified risk assessment metric cannot apply to all types of stablecoins.

Wider adoption in the retail market

This distinction between payment and yield aligns with traditional finance (TradFi) thinking models, reducing user confusion and operational errors. New users should not hold complex yield tokens without being informed.

Better user experience (UX)

Service providers like wallets should avoid conflating payment and yield stablecoins, which can confuse users. This distinction will unlock a simpler and smarter wallet user experience. While seasoned users are well aware of the differences, clearly labeling them in the user interface can help newcomers understand. This improvement will also simplify integration for new banks (neobanks) and other fintech companies. Of course, the real user experience challenge is not just labeling but also educating users about tail risks.

Adoption in the institutional market

The distinction between payment and yield aligns with existing financial classifications, helping to improve accounting treatment, risk isolation, and support 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 (broadly defined as securities) almost always fall under completely different regulatory regimes globally. This is not a coincidence. Legislators are already working in this direction: for example, the U.S. GENIUS Act and the EU MiCAR regulation recognize this. This does not mean that payment stablecoins can never provide yields (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 guidance

Although this framework is not perfect, it is the simplest way to position products, users, and policies around purpose.

Some shortcomings:

• Yield is a complex category that includes multiple subcategories. Yield stablecoins encompass various subtypes, each with different structures, risks, and uses. Some yield through DeFi lending, some stake ETH, and others purchase government bonds. This is a vast concept that may change as the market matures, especially with regulatory intervention. In the future, the concept of "yield stablecoins" may be split into more specific and clear categories.

• Yield attribution issues: If yields are not passed on to users, they are typically captured by other participants (usually the issuer). As mentioned, stablecoins can shift from "issuer yield" to "holder yield." Additionally, stablecoin users can also earn yields through lending markets, and it remains uncertain whether yield stablecoins are sufficiently distinct from other secondary yield sources from the user's perspective.

• Naming controversy: Some argue that this broader category should be called "yield tokens" rather than "yield stablecoins." This viewpoint is reasonable, but in practice, yield stablecoins have emerged as a unique subcategory characterized by stable anchoring mechanisms and specific user roles. They are often viewed as a distinct category separate from non-stablecoin tokenized real-world assets (RWAs), liquid staking tokens (LSTs), or other DeFi structured yield products. As the market develops, this trend may continue to evolve, especially 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 providing yields, while the GENIUS Act debates this issue. The market will adjust accordingly based on the regulatory framework.

These concerns are indeed valid. However, viewing "stablecoins" broadly as a single category does not help address the issues. The distinction between payment and yield is a foundational framework that should have been proposed earlier. We should clearly label this distinction and build around it. If your stablecoin cannot easily fit into one of these two categories, it should also be clearly stated.

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

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