I don't think we actually disagree too much, let me try to update your view:

> I'm more familiar with the people behind Tether, where I'm fairly confident they are crooks. I know nothing specifically about USDC except that the issuance patterns look similar.

I think Tether are probably crooks that won't ever get caught, because I don't think their scheme will collapse, but I agree.

The main difference in issuance between USDC (Circle, New York) and GUSD (Gemini, Boston) vs USDT (Tether, US Virgin Islands) is that these are US companies playing by US laws to do business with US exchanges. They exist primarily because everyone is skeptical of Tether.

To be clear, neither USDC nor GUSD have full audits (they provide attestations like Tether), so some skepticism is definitely warranted. But know that these are US companies backed by US investors, selling products to other US companies.

For example, we know Gemini was founded by the Winklevoss's because they're very public about it. We know Tether was founded by Bitfinex because of the Paradise Papers.

While they could all technically be insolvent and none of us would know until it's too late, I trust the US stablecoins backed by prominent investors a lot more than I trust USDT.

> If there is an investment sector that promises such a massively higher yield than the rest of the economy, there are really only two possible explanations: (1) a massively higher risk of loss or (2) a scam.

I appreciate your skepticism, but you're missing another explanation: (3) innovation.

> I've yet to see an explanation for why there is an enterprise that (a) can generate a 40% return

Let me show you a live example for a hot project in DeFi right now. This launched 4 days ago: https://www.oxdao.fi/

See their medium post if you want to know why the DAO exists, but "farming" is a common thing in DeFi and you don't really have to know what the project does to do it: https://medium.com/@0xdao?p=86a8d6026191

If you stake your USDC there, you would currently be earning 37% APR on your USDC, paid to you in OXD. This rate of earning is highly volatile as it's based on the price of OXD, which is a brand new cryptocurrency that's still in price discovery. If you were to claim and sell your OXD as you earn it from staking USDC, the rate would be real.

If OXD is a very successful project, it could be worth a lot more. If it's a total failure, it could be worth noting. You get to decide when to enter and exit.

Assuming there's not a contract bug, the USDC will be returned to you in full when you decide to exit. If there is a contract bug, you lose your USDC and you get to read about what happened here: https://rekt.news/

This isn't a scam and the 40% return is real, but it's transitory. You're essentially temporarily pledging an asset to show support for the project, and you're receiving a share of the project in return.

When you decide to exit, you get the full amount of USDC returned to you, plus the OXD you earned, so your USDC is only at "contract risk" (vulnerable to a programming bug) and "opportunity risk" (maybe it could have made more elsewhere), but not "price risk" (vulnerable to a market crash).

> and (b) would take crypto loans at 40% instead of taking fiat loans at much lower rates and buying their own crypto.

The 40% isn't because someone is paying you to borrow that, it's because they're paying you in shares of their own (currently worthless?) project, and you're betting it'll perform better than USD parked in a money market account or treasury or wherever you keep USD.

This is an extremely common way of generating yield. Here's a dashboard you can use to learn more: https://defillama.com/protocols/yield

What does the project get out of this? Marketing, branding, confidence.

It's a huge vote of confidence that this project was able to lock over $4B in 4 days. The project is now has a market cap of over $30M on the tokens they've already handed out.

> I've also yet to see an explanation for where those massive DeFi returns are supposed to come from.

This particular example is a wonky one about DAO voting itself, so it's a bit meta, but the short answer really is "innovation".

If you don't find this explanation sufficient, let me know what's confusing and I'll try to help you understand it.