Stablecoin vaults deliver USD yield via stablecoin trading volume
Stablecoin vaults consist of stablecoin pairs, where both tokens are pegged to the US Dollar. These vaults do not have exposure to price movements on the market. The primary way to earn yield from Stablecoin vaults is via trading volume on DEXes: Stablecoins like USDC typically experience the highest volumes in DeFi, and providing liquidity to a Kamino stablecoin vault enables you to benefit from these volumes via trading fees.
Stablecoin vaults can produce yield in any market condition, whether the market is experiencing strong upwards price action, or downwards. These vaults require high a high volume of swaps facilitated by the underlying pool to produce yield. Thus, when there is high trading volume on the market, these vaults usually perform optimally.
These vaults do not entail market exposure, so depositors are not affected by downward price action, nor do they directly benefit from upwards price action. The primary risk of stablecoin vaults is that either of the assets in the pair experiences a depeg from the US Dollar. This would lead to the vault becoming imbalanced, incurring impermanent loss on the position.