A 20% stablecoin APY may be less magical than it sounds

A 20% annual percentage yield on stablecoins may not be as impressive as it appears. A notable example occurred in 2022 when TerraUSD (UST), a stablecoin pegged to the US dollar, suffered a collapse, resulting in the loss of tens of billions in market value. This incident led to a Singapore International Commercial Court ruling in July 2025, finding five fraudulent misrepresentations and awarding damages to seven claimants.

The takeaway from this event is that high returns are meaningless unless the underlying economics are solid and clear. In the case of stablecoin liquidity, income is generated only when capital is utilized to execute real currency conversions, which entails paying fees or accepting FX spreads. For instance, converting $100,000 with a 20-basis-point spread would yield $200, requiring around 100 full-turnover conversions in a year to generate a 20% gross annualized return.

However, this figure is an annualized projection, not a guarantee, and can be subject to fluctuations depending on conversion flow, liquidity, and other market conditions. High APYs do not automatically imply low risk. Factors such as currency inventory exposure, smart-contract vulnerabilities, stablecoin depegging, operational failures, and regulatory changes can all contribute to risk.

Before considering an APY, it's crucial to determine whether the return stems from actual transaction fees and FX spreads, and to understand the potential risks involved. A direct pairing between stablecoins can help minimize additional spreads, liquidity dependencies, and execution risks, which may otherwise arise from converting through intermediary currencies like USD.