Crypto shops are betting on lending amid the market downturn with yield products that boast modest annual returns – by the industry’s lofty standards, at least – on their clients’ dollars

Turning loaned dollars into more dollars is hardly a new proposition in crypto: myriad decentralized finance (DeFi) protocols woo stablecoin holders with a handful of basis points. Terra’s recently imploded Anchor offered 20% yields generated through murky means.

By contrast, the new yield products generate their returns through “rational” rails, said Matt Hougan, chief investment officer for Bitwise, which is rolling out a “USD Income Fund” that loans investors’ dollars to counterparties like Coinbase (COIN) and Gemini (who then loan them into the stablecoin market) in the chase for 4% to 8% yields.

“You can think of us as an aggregation point for cash that is entering this market,” Hougan said on a call. “There’s significant demand for cash in the crypto economy.” He said some of that pressure comes from the void usually filled by traditional lending institutions “unwilling” to loan to a risky industry.

In the short term, that discrepancy could prove highly lucrative for lenders willing to stomach some of the risk. Their dollars can do a lot more work in the crypto economy than in their near-zero interest rate savings accounts, especially given inflation.

“People are being forced to search for yield,” Hougan said, and that’s prompting fund providers to innovate.

European crypto issuer 21Shares’ USD Yield ETP (USDY) and its 5% target yield is the latest iteration. Listed on the Swiss SIX exchange Wednesday, it plans to lend each invested dollar out for somewhere between $1.10 and $1.50 in bitcoin (BTC) and ether (ETH) as collateral – a sort of insurance policy if the borrower implodes.

“So if the counterparty goes bye-bye” explained President Ophelia Snyder, ”we can just go knock on the custodian’s door and say, ‘Hey, they're gone. Give us our money back.’”

Snyder said 21Shares plans to lend investors’ assets out to BlockFi.

The risk of imploding crypto counterparties was on full display earlier this month when the algorithmic stablecoin terraUSD (UST) and sister token LUNA went into a death spiral. One of the big appeals of that troubled ecosystem were the eye-catching but unsustainable yields of Terra’s Anchor protocol.

Terra’s floundering yield schemes have little in common with USDY, Snyder said. For starters, USDY takes collateral to protect its investors against a counterparty’s default. This may limit the yield generation upside but it does so in the name of “risk adjusted” returns. In her view, that’s a worthwhile tradeoff for investors getting pummeled by market forces.

“Virtually every type of financial product on the market right now is negative. Holding cash has a negative real interest rate. And that's a really important thing to realize,” she said. “This product is particularly well adapted against this backdrop.”