In today’s fast-evolving DeFi and stablecoin markets, investors are increasingly seeking yield solutions that balance attractive returns with strong risk management and token utility. While many Liquid Yield Tokens (LYTs) offer high APYs, they often lack sustainable yield sources, strong risk management or enduring forms of utility beyond passively holding to earn yield.

SIERRA uniquely addresses these trade-offs by blending Real-World Assets (RWAs) with proven DeFi yield sources, creating a single token that delivers sustainable, risk-adjusted returns that supports extensive utility across CeFi and DeFi while not compromising on sound risk management or deep secondary market liquidity.

In this article, we will address what SIERRA is and how it differentiates itself from other LYTs. 

What is SIERRA?

The Sierra Protocol reimagines money by issuing SIERRA, a Liquid Yield Token (LYT) built to deliver the best user experience across DeFi, CeFi and TradFi. Instead of dealing with hidden fees, banking delays and price inflation, SIERRA holders experience a new form of money that is universally accessible, self-custodial, transparent and growing in value through intrinsic yield. By holding SIERRA, users passively earn industry-leading yield, compounded daily without any lock-ups, hidden fees, or requirements to stake or claim rewards.

Backed by USDC deployed into a diversified portfolio of real-world financial assets (RWAs) and blue-chip DeFi yield sources, SIERRA delivers stable risk-adjusted returns, deep liquidity, and utility through integrations across CeFi and DeFi.  

SIERRA is natively issued on the Avalanche blockchain and can be seamlessly bridged to Ethereum and other blockchain networks via our partnership with LayerZero's OFT standard.

How does SIERRA Generate Yield?

SIERRA accrues yield through its portfolio of reserve assets, which generates returns from investments in both investment-grade RWAs and blue-chip DeFi yield sources. The net yield for SIERRA is the blended rate of all of the different assets in the portfolio.    

There is a spectrum of yield sources that generate yield for all LYTs, which have various risk and return trade-offs. At a high level, the main forms of sustainable yield sources are:

Real-World Assets (RWA)

• Treasury Bills: Short-term government securities that provide the baseline risk-free rate of return.

• Corporate Bonds and other Fixed Income Securities: These are typically issued by public companies and provide higher yield in exchange for more credit, duration and liquidity risk. Only investment-grade securities will be considered for SIERRA's portfolio of reserve assets. 

DeFi

• Overcollateralized Lending: Borrowers take loans but must lock up more assets than they borrow. If those assets lose too much value, they are sold to make sure lenders get paid back.

• Perpetual Futures Basis: A strategy that earns yield from funding payments in derivatives markets. By holding a hedged position, investors stay market-neutral while collecting yield paid as financing costs by speculators.

• Uncollateralized Lending: Loans made to institutional borrowers without requiring collateral posted that exceeds the amount borrowed, in exchange for higher returns at the cost of elevated credit risk.

• Principal Tokens (PTs): Similar to zero-coupon bonds where they are purchased at a discount and redeemed at face value when they mature.

• Market-Making Vaults: Pools of capital managed by trading strategies that earn returns from profits, fees, funding payments, and liquidations. These strategies often provide higher returns in exchange for elevated risk and complexity

How does SIERRA differ from other LYTs?

Each LYT differs along three main dimensions, including their choice of reserves management, user experience as an LYT holder and available utility for the LYT across CeFi and DeFi. 

Most LYTs have a singular focus for their choice of reserves management strategy. For example, some LYTs all primarily generate yield for holders via perpetual futures basis strategies. Other LYTs primarily pass along yield generated via overcollateralized loans to institutional borrowers. In contrast, SIERRA is the only LYT with a flexible reserve management strategy that includes all major forms of sustainable yield sources. Additionally, SIERRA’s reserves can be reallocated daily to different yield sources in response to changing market conditions. As new yield sources emerge, SIERRA can flexibly incorporate them into its reserve management strategy provided the new yield source passes a risk assessment.

There are considerable differences in user experience across LYTs. Some LYTs have a multi-token model, where one asset is designed as a stablecoin that must be staked to get its yield-bearing equivalent. This approach fragments liquidity across multiple different tokens and offers different value propositions for different users. By requiring users to stake to accrue yield, non-stakers are effectively diluted and makes staking yields artificially higher. This is because 100% of the reserves are used to generate yield but that yield is only paid out to a subset of holders that are staking. SIERRA aims to have the simplest user experience by having a single-token model, where yield is distributed equally across all tokenholders. There is no staking, claiming, locking or other actions required and over time all SIERRA holders simply passively accrue yield equally.

Token utility refers to the different use cases that a LYT has available. Utility can range from passive yield accrual to providing liquidity and lending in DeFi. On CeFi, utility includes making payments and posting as trading collateral on derivatives trading platforms. Many LYTs have developed significant utility across DeFi through integrations with major apps like Pendle, AAVE, Morpho, Euler and Uniswap. However, there has been significantly less support for LYT utility across CeFi, especially around trading collateral on derivatives trading platforms. This is a central form of utility that SIERRA aims to deliver for its holders shortly after launch and future articles will elaborate further on protocol design choices that help to enable this utility.