7. Empirical Yield Analysis for Stablecoin-to-Stablecoin Liquidity Pools

7.1. Introduction

One of the core pillars of the UST Protocol is its ability to generate sustainable yield by deploying collateral (USDC/USDT) into stablecoin-to-stablecoin liquidity pools. This chapter presents real-world data and historical metrics illustrating how much yield these pools can produce under varying market conditions. By examining empirical evidence from live decentralized exchanges (DEXs)—such as Uniswap V3—and aggregated data, we aim to demonstrate the feasibility of achieving attractive APRs in low-volatility, stablecoin-focused environments.

7.2. Historical APR Data Overview

Below is a high-level summary of the yields captured in three distinct stablecoin-to-stablecoin pools, as evidenced by the provided charts:

7.2.1. Pool A (e.g., USDC–USDC on Uniswap V3)

• Historical APR Range: ~2% to ~10% on average, with occasional spikes exceeding 20%.

• Current APR: ~2.21% at a Total Value Locked (TVL) of $17.88 million.

• Observations: This pool exhibits relatively stable yields but experiences short-term APR surges correlated with sudden increases in trading volume or volatility.

7.2.2. Pool B (e.g., another stablecoin pair on Uniswap V3)

• Historical APR Range: Often fluctuating between ~5% and ~40%, with periodic peaks near or above 70%.

• Current APR: ~29.60% at a TVL of $311k.

• Observations: Although the TVL is smaller, higher APR is occasionally observed during periods of heightened trading activity. The volatility in APR underscores the importance of monitoring liquidity depth and volume.

7.2.3. Pool C (aggregated stablecoin pool data)

• Historical APR Range: ~1% to ~80%, heavily dependent on market conditions and liquidity depth.

• Long-Term Trend: An average APR often stabilizing around the 10–20% range over extended periods, with spikes during high-volume trading windows.

• Observations: This data underscores that stablecoin-to-stablecoin pools can periodically deliver outsized returns, albeit with short-lived peaks.

7.2.4. Numerical breakdowns of APR trends across multiple DEXs and stablecoin pairs

Key takeaways:

• Average Sustainable Yields: Over a 6–12 month horizon, many pools consistently yield in the 10–20% APR bracket, especially in times of moderate trading volume.

• Volatility in Short-Term Spikes: APR spikes often coincide with sudden liquidity inflows or arbitrage opportunities. While these surges can be lucrative, they are typically short-lived.

• Liquidity Sensitivity: Pools with higher TVL generally exhibit lower volatility in APR, but smaller pools can produce more dramatic yield fluctuations—both higher peaks and sharper troughs.

7.3. Proof-of-Concept Backtesting (Methodology, Results & Disclosure)

7.3.1. Why we built it

Quoted APRs on AMMs (Uniswap v3/v4 and similar) are often pool-wide averages. They divide fees by total liquidity and ignore how concentrated-liquidity works, which concentrates liquidity by tick intervals—meaning they don’t reflect what an active LP can earn when liquidity is placed in the actual price range where trades happen. Our backtesting tool was created to measure what a defined strategy would have earned on a tick by tick and trade by trade basis, not the headline average.

7.3.2. How it works (plain language)

• The engine replays historical trades tick-by-tick, computing fees and position balances at each price tick, using the exact liquidity present in that tick at that time. This yields precise results for a chosen pair, fee tier, and price range—far beyond “average APR” estimates.

• You define inputs (chain, DEX, stablecoin pair, fee tier, start/end dates, and your price range). The tool then calculates total fees, APR, impermanent loss, Sharpe ratio, time-in-range, and a portfolio-level view if multiple positions are tested. It also visualizes price vs. your range, daily volume, and volume distribution by price to show where trades actually occurred.

• Because stablecoin pairs move tightly, effective strategies typically use narrow ranges (few ticks); the tool confirms how “too wide” ranges bring APRs down toward pool averages.

7.3.3. Scope & coverage

Today the POC supports v2/v3 pools across major EVM chains/DEXes (e.g., Uniswap, PancakeSwap, SushiSwap). 

v4 analysis follows the same logic but requires custom data indexing due to hooks and the lack of robust third-party datasets. We’ll add this once we complete our own indexers.

7.3.4. Headline results (to date)*

What these numbers tell us:

Why the jump is so large:

• Concentrated-liquidity edge. Uniswap v3 pools don’t reward idle capital. By narrowing our liquidity band to the exact price zone where trades occur, we earn a far larger share of fees than the average LP—turning low-single-digit “quoted” APRs into double-digit, sometimes 50 %+ annualised yields.

• Stablecoins make it work. USDC/USDT rarely stray far from $1, so we can confidently park liquidity in tight ranges without constant rebalancing.

Fee-tier dynamics:

• Separate pools exist for 0.01 % and 0.05 % fees. Lower fees attract more volume (traders like cheap swaps), giving the 0.01 % pools higher absolute fees even though the rate is smaller.

• For Ethereum the optimiser found a sweeter spot in the 0.01 % pool (29 % over 30 days), but for Polygon the 0.05 % pool outperformed on a 30-day basis (16 %). The engine picks whichever net-of-fee setup prints the best risk-adjusted return.

Cross-chain diversification:

• Results span three chains (Ethereum, Polygon, BNB) and two fee tiers each. Seeing the strategy work in multiple environments reduces the chance that performance is a fluke tied to one venue.

• The standout 62 % 30-day APR on BNB reflects both high stablecoin turnover on that chain and temporarily under-deployed liquidity—an edge we expect to normalise but still illustrates upside when markets get busy.

Risk lens: Sharpe Ratio 3.29:

• A Sharpe above 3 is exceptional in traditional finance and rare in DeFi. It means the volatility of returns is modest relative to the gains produced. In plain English: we’re not taking wild swings to chase yield; most days the strategy ticks upward with few drawdowns.

• Because the assets are dollar-pegged, impermanent loss stays minimal. The main risk is volume drying up, not token price collapse.

Consistency over longer windows:

• One-day spikes can be noisy; that’s why we focus on the 30-day column. Even after a whole month the optimiser still turned 2–5 % quoted APRs into 9–30 % on Ethereum/Polygon and 60 %+ on BNB.

• Internal three-, six-, and twelve-month backtests (not shown here) confirm that the uplift persists across bull, bear, and sideways regimes, though the absolute number flexes with market activity.

Capacity & scalability:

• Scalability is only limited by the volume of the overall stablecoin markets.

• Concentrated positions do not need huge TVL to capture fees, so UST-Protocol-sized allocations can fit comfortably without distorting returns.

• If volume doubles, fee income roughly doubles too; if volume halves, we still outperform pool averages because the strategy occupies the highest performing ticks with the best volume to liquidity ratios.

*Reminder: Past performance is not a guarantee of future results; live returns will vary with trading volume, gas prices, and how often the strategy needs to rebalance. Still, these tests give a clear, data-backed picture of the edge UST Protocol can capture on stable-to-stable liquidity.

7.3.5. Why we published results, not the tool

Releasing the full engine would:

a.) let anyone replicate UST Protocol’s core strategy manually;

b.) make it easier to clone the product elsewhere;

To protect protocol economics and tokenholder value, we published transparent, reproducible reports—without open-sourcing the optimizer and execution logic. (The optimizer includes genetic search, a mathematically “best possible” counterfactual, and indicator-assisted strategies; this is proprietary IP we will keep in-house.).

7.4. Factors Influencing Yield Fluctuations

The observed yield variations are shaped by several market and protocol-level dynamics:

Trading Volume & Volatility:

• Stablecoin pairs experience heightened fee generation when large trades or rapid price movements in correlated assets occur, temporarily boosting APR.

Liquidity Depth:

• Pools with higher TVL often see more stable APR, whereas smaller pools can generate larger short-term spikes but also face greater vulnerability to rapid capital inflows/outflows.

Arbitrage & Market Efficiency:

• Temporary mispricings between stablecoins (e.g., USDC and USDT) can invite arbitrage activity, elevating trading volume and thus yield.

DEX Fee Structures:

• Each DEX sets its own fee parameters. Pools on platforms with higher fee tiers can see more pronounced yield swings, especially if volume is sporadic.

Market Sentiment & External Events:

• Broader crypto market conditions, regulatory announcements, or sudden liquidity migrations can cause abrupt shifts in APR.

7.5. Relevance for the UST Protocol

These empirical yield metrics validate the foundational premise of the UST Protocol:

Sustainable Yield Potential:

• Historical data shows that stablecoin-to-stablecoin liquidity pools can produce meaningful APRs (often 10–20% on average) with relatively low volatility compared to non-stable pairs. This aligns with USTD’s target yield model and mitigates risk by focusing on “apples-to-apples” collateral (fiat-backed stablecoins).

Automated Harvesting & Airdrops:

• The periodic yield surges, while short-lived, can be captured by an automated system that continuously monitors pool performance. The UST Protocol’s smart contracts can harvest these yields and distribute them to USTD holders via automated airdrops, amplifying user returns without manual intervention.

Collateral Optimization:

• By analyzing liquidity depth and yield patterns, the protocol can dynamically allocate collateral to pools with the most favorable risk–reward profile at any given time, thus maximizing yield generation in a relatively stable environment.

7.6. Conclusion

Real-world data from stablecoin-to-stablecoin liquidity pools consistently demonstrates the feasibility of generating sustainable yields. Although APR can fluctuate due to trading volume and external market factors, historical evidence supports the UST Protocol’s strategy of focusing on low-volatility, stablecoin-centric pools. This data-driven approach reinforces the viability of delivering reliable yields to USTD holders, all within a framework that minimizes exposure to the price volatility common in non-stable assets.

In summary, the historical APR charts and spreadsheet data confirm that stablecoin-to-stablecoin liquidity pools can be a robust source of yield. The UST Protocol is uniquely positioned to leverage these pools, capturing consistent yields and distributing them automatically to users—thereby fulfilling its core promise of simplicity, stability, and sustainable returns.