Nest’s vaults rely on stablecoins - cryptocurrencies pegged to stable assets like the US dollar - to provide users with reliable yields. Nest strategically chooses specific stablecoins for each vault, depending on the role they play: either for vault deposits by users to access yield, as yield-bearing assets within the vault, or as liquidity layers to enable smooth deposits and withdrawals.

Stablecoins Explained

Stablecoins maintain price stability by pegging their value to traditional currencies or other stable assets. They bridge the gap between traditional finance and crypto, offering the efficiency of digital transactions without the volatility typical of cryptocurrencies.

The main types include:

• Fiat-backed Stablecoins: Backed by reserves of traditional currencies (e.g., USDT, USDC, PYUSD).
• Crypto-collateralized Stablecoins: Backed by cryptocurrencies.
• Algorithmic Stablecoins: Use algorithms and incentives to maintain their peg without direct collateral.
• Asset-backed Stablecoins: Backed by real world assets such as commodities or treasury bills (e.g., USDM).

While each type has its pros and cons, from the rock-solid (but centralized) nature of fiat-backed coins to the yield opportunities of RWA-backed tokens, Nest only leverages fiat and asset-backed stablecoins  across its vaults. By picking the right kind of stablecoin for each strategy, Nest can balance stability, decentralization, yield, and trust for its users.

How Nest Uses Stablecoins in Vaults

Stablecoins in Nest are utilized in several ways:

1. Deposits: Users deposit these stablecoins onto Nest to gain access to yield generated by vault strategies.
2. Yield-bearing or Liquidity: These stablecoins form part of the asset composition within vaults themselves, either generating yield directly, or providing liquidity to facilitate smooth user operations (deposits and withdrawals).

Deposited Stablecoins

Stablecoins that can be deposited by a user within a vault are used to access yield.

Nest supports Plume USD (pUSD), USD Coin (USDC), Tether (USDT) and other stablecoins to deposit into vaults. When users deposit these into Nest vaults, they access yield generated by the assets within those vaults. These stablecoins are ideal for deposits due to their stability, widespread acceptance, and strong liquidity profiles.

• pUSD is specifically designed for the Plume ecosystem, providing seamless interaction with Nest and other RWAfi applications. It is used as both deposits and to provide liquidity in some vaults.
• USDC and USDT are globally recognized, highly liquid stablecoins, offering users familiarity and trust.

Yield-Bearing Stablecoins

Stablecoins that are yield-bearing automatically accrue interest or rewards while being held.

For example, Nest’s nELIXIR vault includes deUSD, a yield-bearing stablecoin issued by Elixir. Unlike deposited stablecoins, deUSD actively generates yield through real world financial activities, such as funding rate arbitrage and treasury investments.

deUSD can also be deposited, and serves as an institutional onramp to access permissionless yields on Nest. Institutions can mint deUSD with RWA tokens such as BlackRock's BUIDL and Hamilton Lane's SCOPE, and then deposit into the nELIXIR vault to benefit indirectly from deUSD’s continuous yield accumulation.

Liquidity Stablecoins

Stablecoins used as liquidity assets are designed to help vault operations by providing adequate liquidity within the vaults..

USDM is issued by Mountain Protocol as a yield-bearing stablecoin backed by U.S. Treasury bills, used primarily as a liquidity buffer in the nTBILL and nRWA vaults.

These vaults consist of diversified real world assets, and USDM enhances vault liquidity, making it easier and faster for users to withdraw funds without disrupting yield generation from other underlying assets. The yield generated by USDM also contributes positively to overall vault returns.

PayPal USD (PYUSD) is another example of a liquidity asset in the upcoming nPAYFI vault. PYUSD, fully backed by U.S. dollar reserves managed by PayPal, will ensure vault liquidity, and is built with strong compliance (KYC/AML) and transparency in mind, with monthly reserve reports.

This will position the nPAYFI vault to directly capture yields from payment finance, bringing real world payment flows such as merchant payments, invoices, and other finance opportunities, onchain to Nest. 

Why Stablecoin Selection Matters for Nest

Selecting the optimal stablecoin for each Nest vault strategy is crucial to ensure stability, maximize yields, and maintain seamless user experiences. By using stablecoins for deposits, yield-bearing assets, or liquidity layers, Nest strategically tailors each vault to its intended investment objective and risk profile.

Through thoughtful stablecoin choices, Nest provides robust and reliable yield opportunities, allowing users to deposit in familiar stable currencies and earn yields that were once inaccessible to the average person. In the end, Nest’s careful stablecoin selection is helping to bring the power of real world yields to everyday users in a stable, secure way.