Stablecoins: The Next Level

At Level, our mission is to build a stablecoin that remains true to the core principles of DeFi — permissionless, transparent, and composable. By using DeFi-native yield to power lvlUSD and integrating it deeply into leading DeFi protocols, Level unlocks the full potential of permissionless finance.

An Untapped Opportunity for Stablecoins

The unquestionable product market fit of stablecoins has led to countless new yield-bearing stablecoin projects. Most of these stablecoins rely on centralized yield — tokenized treasuries or centralized exchange (CEX) trading strategies — while ignoring the single most important source of stablecoin yield.

No yield-bearing stablecoin has matched the yield-generating scale of lending protocols. Currently, over $6 billion of USDC and USDT are being supplied on Aave alone. Lending protocols, especially Aave, have established themselves the default destination for stablecoin yield, and Aave yield is commonly viewed as the "crypto risk-free rate." Lending protocol yield is also reflexive to the broader crypto market while offering greater scalability, sustainability and security. When markets are up and yields increase, so does the demand for leverage which is reflected in higher lending yields.

The rapid growth of DeFi and lending protocols have attracted the attention of institutions and TradFi. Major institutions are moving into the space, showing strong interest in lending yield, yield tokenization and other sources of DeFi yield — reinforcing the long-term viability of DeFi-native yield strategies.

Lending protocols serve as a natural foundation for stablecoins to build on. Although Level adds an additional layer of protocol and smart contract risk, Level's yield generation mechanism generally inherits the scalability and security of the underlying lending protocols.

While there is huge potential to leverage the composability of DeFi to increase capital efficiency, there are currently limited use cases for lending protocol receipt tokens. The increasing popularity of curator based lending protocols like Morpho also introduces another problem — the fragmentation of lending protocol receipt tokens. Aave has aUSDC and aUSDT, and each Morpho vault has its own vault token. This fragmented liquidity makes it more difficult to integrate the receipt tokens into DeFi.

The Level Solution

We believe that a stablecoin built on lending protocols can offer superior risk-adjusted yield while increasing composability and utility for users.

• Competitive yield. Since starting to distribute yield in December 2024, Level's slvlUSD APY has consistently outperformed most major yield-bearing stablecoin competitors. Note that historical performance is not indicative of future results.

• Full onchain transparency. Anyone can easily verify the lvlUSD reserves and its yield generation mechanisms.

• Minimized centralized counterparty risk. Reserves are held in smart contracts rather than centralized counterparties and custodians.

• Reduced operational risk. Reserve management is automated by audited and open-sourced smart contracts.

• Increased composability. Unlike lending protocol receipt tokens, lvlUSD is integrated with leading DeFi protocols, including Pendle, Spectra, Morpho and LayerZero.

With Level, users not only enjoy the benefits of lending protocols but also have higher yield earning potential and more utility.