Stablecoins have evolved from first-generation payment-focused models such as USDC and USDT, to second-generation yield-bearing stablecoins (YB Stablecoins)that introduced interest distribution. The question now is: what defines the third generation of stablecoins?
The utility of YB stablecoins lies in their composability with DeFi. Beyond simply providing interest, they can serve as collateral for new DeFi products, powering Money Legos that expand capital efficiency.
However, existing YB stablecoins centralize interest accrual and claims with the issuer. For integrators to access yield, they must develop additional contracts, manually claim from issuers, or register whitelisted addresses. This limits permissionless design and constrains the scale and scope of composability.
USDN introduces Composable Yield as a core feature. This allows any chain or protocol integrating USDN to directly route yield to smart contracts or addresses of their choice, enabling fully autonomous yield distribution design.
In crypto’s history, empowering developer sovereignty has always accelerated network effects, creating fertile ground for rapid application growth atop base infrastructure. USDN follows this same playbook, opening a new frontier for developer sovereignty in the yield layer.
The most widely used stablecoins for payments and remittances remain USDT and USDC. These first-generation stablecoins have grown into a massive industry with a combined market size exceeding $240 billion.
The next step was the rise of second-generation YB stablecoins, designed to share the returns generated from reserve capital with stakeholders. By directing yield from short-term U.S. treasuries or delta-hedging strategies, they advanced the utility of stablecoins as programmable money. As a result, the market size of YB stablecoins has already reached around $9 billion.
So where does the third generation of stablecoins go from here? The essence of stablecoins lies in their programmability. Unlike traditional money, stablecoins can embed conditional payments or automated distribution logic at the code level. This is where Noble’s USDN introduces a fundamental breakthrough with Composable Yield, empowering integrators to autonomously design yield distribution structures.
Let’s begin with Noble, the issuer of USDN. Noble is a Cosmos SDK–based appchain purpose-built for native asset issuance in the IBC ecosystem (e.g., native IBC-connected USDC). Before Noble launched, Cosmos appchains had to rely on bridges for USDC access. With Noble, and through IBC and CCTP interoperability, native USDC is now supplied directly to major appchains such as dYdX, Osmosis, and Neutron. To date, Noble has facilitated over $365M in USDC issuance and $19.3B in cumulative transaction volume.
Source: Map of Zones
Noble has established itself as critical infrastructure for the IBC ecosystem. However, the original Noble chain lacked a virtual machine or smart contract support, limiting its ability to serve as a permissionless hub for stablecoin-native applications.
To fill this gap, Noble is now building the Noble AppLayer, an EVM-compatible rollup built on Celestia. The AppLayer provides the infrastructure for applications that require deep, native stablecoin liquidity to operate reliably at scale.
At the center of this new environment is USDN. As applications on the Noble AppLayer connect cross-chain liquidity with Ethereum’s blue-chip DeFi protocols, USDN will serve as the reserve stablecoin underpinning this ecosystem.
So what makes USDN unique as a stablecoin? Fundamentally, USDN is designed to integrate across a wide range of use cases including DeFi protocols, onramps, transfers, and payments. Collateralized by short-term U.S. Treasuries, USDN maintains a reliable 1:1 peg while distributing yield directly to holders without requiring staking or lockups, currently offering ~4% variable APY.
USDN also emphasizes resilience with a 102% overcollateralization model. This ensures that the value of reserves always exceeds total issuance, creating a buffer against market volatility or operational frictions that could threaten peg stability or redemption guarantees. As of September 2025, USDN has surpassed $100M in supply and distributed over $1.7M in cumulative yield to ~30,000 holders.
Source: Noble
USDN’s collateralization is built in collaboration with M0 Protocol, a B2B stablecoin infrastructure provider that allows institutions to launch their own stablecoins backed by a shared liquidity layer. Unlike traditional single-issuer models where the same entity manages both reserves and compliance, M0 enables multiple partners to issue custom stablecoins on the same base liquidity. For Noble, this means leveraging M0’s infrastructure to launch USDN without directly managing large-scale reserves or compliance burdens.
What truly sets USDN apart is its Composable Yield distribution mechanism. Composability here means that any chain or protocol integrating USDN can directly designate where yield flows, whether it is to a contract, a treasury, or a custom address.
The advantage of composable yield is autonomy.
Traditional YB stablecoins lock accrual and claims with the issuer. Yield accrues in an issuer-controlled vault, and integrators must either manually request distributions, build separate contracts, or go through a whitelist to access it. They hold no authority over where or how yield is allocated. This limits developer sovereignty and reduces the flexibility of integrating yield into new designs.
USDN shifts this control away from the issuer and toward integrators, automating yield flows onchain. Developers can program distribution logic directly at the code level. For example, yield can be routed automatically to liquidity pool rewards, sent directly to a DAO treasury, or used to buy back native tokens at every distribution interval.
How it works in practice:
The integrator opens an IBC channel or Hyperlane route connected to Noble on its network and designates a recipient address for yield. Noble validators then register this address to receive distributions.
Noble verifies that the integrator’s network maintains an open IBC channel or Hyperlane route to Noble and tracks the circulating USDN balance on that chain via cross-chain messaging.
Based on the chain’s share of total USDN supply, the proportional yield is calculated and automatically transferred to the designated address on a recurring basis, with no manual claims or additional steps required.
Through this process, USDN maintains stablecoin fundamentals such as peg stability and redemption guarantees while automating yield accounting and distribution at the chain level. Holders earn yield simply by holding USDN, and integrators gain full sovereignty to design how yield is utilized.
Early integration examples include:
Namada: Using USDN to fund rewards in its Shielded Pool. Users depositing USDN receive proportional yield directly while maintaining privacy, blending Namada’s privacy features with stable yield.
Osmosis: Proposing an “allUSDC” model by combining USDN and USDC into a single yield-bearing asset, where yield from USDN’s U.S. Treasury reserves flows into Osmosis DEX liquidity pools as incentives.
Neutron: Routing USDN yield directly into its treasury to fund developer grants and community incentives. More USDN liquidity on Neutron strengthens the treasury, creating a flywheel of reinvestment.
Cosmos Hub (ATOM): Exploring ways to strengthen ATOM’s value using USDN yield. Proposals include streaming yield to ATOM stakers, or using yield to place limit orders below market to buy and burn ATOM.
YB stablecoins have become a cornerstone of onchain finance. By distributing passive returns from reserve assets while remaining liquid, they align perfectly with DeFi’s demand for capital efficiency.
Their real utility, however, comes from composability with DeFi. YB stablecoins can be used not only to distribute returns but also as collateral to build entirely new financial products, forming the foundation of Money Legos.
A recent example is Ethena’s sUSDe paired with Aave. Leveraging looped lending strategies, sUSDe’s supply surged past $12B, with over half of USDe-linked assets (Pendle-sUSDe, sUSDe) deposited into Aave. This shows that the growth engine for YB stablecoins is not yield alone, but their ability to integrate deeply with DeFi protocols.
The limitation, however, is that this composability still depends on issuer intervention. Since yield accrual and claim authority remain locked in issuer vaults, integrators must rely on manual claims, custom contracts, or whitelist registration to access yield. This restricts permissionless design and ultimately caps the scope and scale of composability.
The way to overcome these composability constraints lies with USDN. By strengthening developer sovereignty and giving integrators full autonomy over yield, USDN offers a direct solution. Throughout crypto’s history, empowering developers has consistently accelerated network effects, creating the foundation on which new applications rapidly emerge and scale. This dynamic has played out across exchanges, money markets, and blockchain infrastructure, with several clear examples:
Chain Layer: Cosmos SDK + IBC
The Cosmos SDK is a framework that allows developers to compose consensus, governance, and technical modules to launch sovereign appchains. Each appchain runs with its own validator set and connects to others via IBC. This model enabled the rise of a specialized ecosystem of appchains such as Osmosis, dYdX, and Noble.
Contract Layer: Ethereum
By introducing ERC and EIP standards, Ethereum made it possible for anyone to deploy smart contracts. This structure, supported by open-source repositories, reference code, and a robust node set, has cultivated the most active developer community in crypto.
Execution Layer: Uniswap v4
With the introduction of Hooks, Uniswap v4 turned liquidity pools into programmable modules. Developers can attach custom logic at pool creation, swaps, or liquidity changes, enabling use cases like MEV protection hooks or lending hooks. This marked Uniswap’s evolution from a simple AMM into a developer platform.
Money Market Layer: Morpho Blue
Morpho Blue allows anyone to spin up custom lending markets by defining collateral-asset pairs, liquidation parameters, and interest rate curves. This modular approach goes beyond traditional governance-constrained models, enabling fully customizable money markets.
USDN extends this playbook to the yield layer. Rather than fixing yield distribution with the issuer, USDN hands control to integrators. Already in its early stage, we are seeing plans to automate yield streams directly into DAO treasuries, liquidity incentives, staker rewards, and token buybacks. As composable yield matures, it is set to unlock a new ecosystem built around USDN, just as sovereignty at the chain, contract, and money market layers sparked entire waves of innovation.
Source: Noble
Ultimately, composable yield aligns the incentives of issuers (Noble), integrators, and users around a single objective: driving USDN inflow. Integrators automatically accrue yield by holding USDN liquidity, and as balances within their apps or chains grow, their recurring revenue grows as well.
This creates a strong incentive for developers to introduce new features and design programs that attract more USDN inflows. As a result, Noble’s issuance expands, its capital base deepens, and all three stakeholders share in the upside, fueling a positive-sum cycle of ecosystem growth.
As the Noble AppLayer comes online, USDN will gain further momentum through integration with Ethereum’s blue-chip DeFi protocols. While early use cases have emerged across the IBC ecosystem, the liquidity depth and protocol diversity of the EVM world are far larger in scale. By combining developer sovereignty with programmability, USDN has the potential to unlock a new wave of growth once embedded into EVM-based DeFi protocols.
Looking beyond DeFi, USDN can also expand into real-world use cases such as payments, remittances, and loyalty programs. In particular, applications such as payment or other stablecoin-native use cases built on the AppLayer are expected to drive broad. Within this same positive-sum cycle, USDN can align the incentives of applications (service providers and distributors) with those of end users.
In this context, USDN represents more than an incremental step. It points beyond first-generation payment-focused stablecoins and second-generation yield-bearing models with fixed distribution. By maximizing composability, USDN has the chance to redefine Money Legos and establish itself as the first true third-generation stablecoin.
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