CPF Ordinary Account pays 2.5 per cent, and Singaporeans queue for Treasury bills when yields rise. So when anyone quotes a 20 per cent annual percentage yield on stablecoins, a sensible person should ask one question first: who is paying it, and why?
I ask because I once paid for not asking.
In 2022, I held TerraUSD, or UST, a stablecoin designed to maintain a one-to-one value against the US dollar. Its Anchor Protocol offered returns close to 20 per cent a year. When UST lost its peg in May, its sister token Luna collapsed with it and tens of billions of dollars in market value disappeared within days.
Later, I joined a representative action in Singapore arising from the collapse. In July 2025, the Singapore International Commercial Court found five fraudulent misrepresentations actionable and awarded reliance damages to seven representative claimants. Other claims were dismissed.
The legal outcome matters. But the financial lesson is simpler: a high return means little unless the underlying economics are real and understandable.
Anchor’s advertised yield was not primarily supported by recurring fee income from ordinary customer demand. Its sustainability depended on reserves, incentives and confidence. When confidence disappeared, there was no durable economic floor beneath the return.
That experience made scepticism non-negotiable. But it also led me to a practical question. Banks, money changers, card networks and remittance companies have earned income from one activity for decades. Can stablecoin liquidity earn income from that same activity?
Foreign exchange is one answer.
FX spreads are the engine
An SME in Ubi pays a supplier in Johor. A family spends baht in Bangkok. A domestic worker sends money home from Lucky Plaza on a Sunday. A Chinatown shop accepts payment from a tourist.
Every one of those transactions involves converting one currency into another. That conversion has a price.
The gap between the buy and sell rate is the FX spread. It is why a bank’s board rate differs from the rate at The Arcade, and it has supported money changers, banks and remittance firms for generations.
Stablecoin FX does not create money from nothing. It can make the liquidity behind currency conversion more transparent, programmable and accessible.
A stablecoin earns nothing simply by sitting in a wallet. Income is generated only when capital is used to quote and execute a real exchange. If a business, merchant, wallet or individual swaps one currency-linked stablecoin for another, it pays a fee or accepts an FX spread. A defined share of that revenue can go to the liquidity providers whose capital made the exchange possible.
Indicative APY ≈ (net FX fees and spreads earned during the period ÷ average capital deployed) × (365 ÷ number of days in the period).
Take a US$100,000 conversion with a 20-basis-point all-in spread: US$100,000 × 0.20 per cent = US$200.
That US$200 comes from a customer who needed to move value between currencies and accepted the quoted cost of doing so.
Also Read: SEA’s stablecoin boom has a dollarisation problem nobody’s pricing in
At a 20-basis-point gross spread, US$100,000 of capital would need to support roughly 100 full-turnover conversions in a year to produce a 20 per cent gross annualised figure, about twice a week. That is before protocol fees, operating costs, rebalancing and any gain or loss from currency inventory.
The key word is annualised. A displayed APY projects recent performance across a full year; it is not a promise.
A money changer may have a roaring Friday before a long weekend, when Singaporeans are buying ringgit, then a quiet Tuesday. If 10 new changers open on the same floor, spreads narrow. Liquidity providers face the same forces. When conversion flow falls, spreads tighten or more capital enters a corridor, returns decline, and may fall to zero.
High APY does not mean low risk
A high annualised return can reflect strong conversion demand. It can also be compensation for risk.
A money changer holding ringgit overnight may lose if the currency moves against him. Stablecoin liquidity providers may face similar inventory exposure, depending on the market design and their position, alongside changing flow, thin liquidity, smart-contract vulnerabilities, stablecoin depegging, operational failures and regulatory change.
Before looking at an APY, ask:
- Does the return come from actual transaction fees and FX spreads?
- Is the figure historical, and over what period was it calculated?
- What happens if conversion flow falls or more liquidity enters?
- What currency, stablecoin, smart-contract and withdrawal risks does the provider take?
- Is there a clear audit, risk-management and redemption framework?
- If a platform cannot explain the economic source of its return, treat the APY as advertising rather than information.
Why direct pairing matters
Nobody changing money for a JB trip asks to convert Singapore dollars into US dollars first, then US dollars into ringgit. They hand over Singapore dollars and receive ringgit.
Stablecoin FX often does not work that way yet. A swap from an SGD stablecoin to an MYR stablecoin may follow this route:
SGD stablecoin → USD stablecoin → MYR stablecoin
That can be sensible. The US dollar remains the world’s deepest and most liquid bridge currency.
But each extra step may add another spread, another liquidity dependency and another point where execution becomes less reliable. If either leg is thin or disrupted, the conversion can become more expensive or less predictable.
A direct route is simpler: SGD stablecoin → MYR stablecoin
Direct is not always better. A thin direct market can be worse than a deep route through US dollars. The goal is not to eliminate USD; it is to make USD an option rather than an unavoidable middleman.
A mature FX system should compare the direct route, a USD-bridged route and any other executable path, then select the best all-in outcome based on liquidity, spreads, fees and settlement conditions.
Also Read: Southeast Asia can’t simply license its way to stablecoin sovereignty
Capital should not sit idle
Traditional automated market makers typically require liquidity to sit in separate pools for separate pairs. A provider supporting several currencies may have to split capital across many markets, leaving some of it idle while waiting for flow.
At Sera, we are building around a different approach called virtual liquidity. A provider can make one deposit available to quote across a defined set of corridors, subject to shared collateral and defined risk limits. Rather than duplicating capital across separate pools for every potential pair, the same collateral can support more than one source of FX flow.
That does not create risk-free returns. It is simply a different capital-allocation model, and it requires clear safeguards: quotes must remain executable, exposures must remain visible and shared collateral must not become hidden leverage.
The next stablecoin question
Much of the stablecoin debate has rightly focused on issuance: who issues the token, what backs it and whether holders can redeem it at par.
UST showed what can go wrong when stability depends on a related token and market confidence rather than robust reserve arrangements. MAS’s stablecoin framework likewise centres on value stability, reserve backing and redemption.
But issuance is only the start.
A USD-, SGD- or MYR-linked stablecoin becomes useful when people and businesses can exchange it, settle with it and spend it where they need to. That requires FX liquidity, transparent pricing, routing, merchant acceptance, redemption clarity and accountable safeguards.
The next stablecoin race will not be won by whoever issues the most tokens. It will be won by the infrastructure that makes different currencies work together at a fair, transparent and reliable rate.
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The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of e27.
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The post A 20% stablecoin APY may be less magical than it sounds appeared first on e27.
