Why Marketing 'Stability' Creates an Expectation of Profit

Stability implies safety. Marketing a token as a 'stable' $1 asset creates the expectation of a risk-free store of value, a promise no on-chain mechanism can guarantee.

The peg is a derivative. A stablecoin's value is a derivative of its underlying collateral and redemption mechanism, not a fundamental property, making it a synthetic financial product like a money market fund.

Users expect yield. Platforms like MakerDAO and Aave embed stablecoins into yield-bearing systems, training users to view 'stability' as the baseline for profitable financial activity, not just a unit of account.

Evidence: The 2022 UST depeg demonstrated that algorithmic stability fails when the promised $1 anchor is treated as a risk-free return vector, not a probabilistic outcome of a complex system.

Stability implies principal protection. Protocols like Lido and Aave advertise 'stable' APYs, but this refers to rate predictability, not asset value. The underlying staked ETH or supplied USDC remains volatile, creating a cognitive disconnect for users expecting a risk-free return.

Yield is a risk premium. The 'stability' of a 3% yield on MakerDAO's DSR or a Compound supply rate is a function of protocol demand and parameter tuning, not a promise. These rates adjust weekly, and the collateral backing the yield can be liquidated.

Marketing creates moral hazard. Framing variable yields as 'stable' allows protocols to onboard users who misunderstand the smart contract risk and oracle failure scenarios inherent to DeFi legos. This misalignment sets the stage for user backlash during market stress.

Evidence: During the UST depeg, 'stable' yields on Anchor Protocol collapsed from 20% to near zero, demonstrating that advertised stability is a function of unsustainable tokenomics, not a fundamental property.

Stability is an investment feature. A token marketed as a stable medium of exchange creates an expectation of price predictability, which is a primary characteristic of a low-risk financial asset, not a consumable good like cloud compute credits on Render Network or file storage on Arbitrum.

The legal precedent is clear. The Howey Test defines an investment contract based on the expectation of profits from the efforts of others. Marketing a 'stablecoin' as a safe harbor during market volatility directly satisfies this criterion, unlike purely functional gas tokens.

Utility tokens fail without speculation. No major Layer 1 token like Ethereum or Solana sustains network security solely on transactional demand; their valuation is driven by speculative capital anticipating future utility, which regulators view as an investment return.

Stability implies a price floor. Marketing a token as 'stable' conditions users to expect minimal downside volatility, a psychological anchor that transforms a speculative asset into a perceived low-risk instrument. This expectation is the foundation for the 'de facto yield' users demand, even from protocols like Lido or Rocket Pool that explicitly disclaim it.

Algorithmic stablecoins are the canonical failure. Projects like Terra's UST and Frax's early iterations marketed stability via algorithmic pegs, creating the expectation of a perpetual 1:1 dollar redeemability. Their collateralization mechanics failed under stress, proving that marketing narratives outpace economic design, leading to systemic collapse.

Liquid staking tokens face this trap. stETH and rETH are derivative claims on volatile ETH, yet their branding as 'liquid' and 'stable' versions of the underlying asset creates an expectation of correlated, low-volatility performance. This mismatch between marketing perception and derivative reality fuels redemption crises during market downturns.

Evidence: The stETH depeg in June 2022 demonstrated this. Despite being a non-custodial derivative, its 'stable' branding contributed to a panic when it traded at a 7% discount, as users treated the deviation not as a market inefficiency but as a broken promise.