Yield-bearing stablecoins are a revolutionary type of digital asset that allows you to earn passive income while maintaining a stable value pegged to the U.S. dollar. These tokens leverage strategies from decentralized finance (DeFi), real-world assets (RWAs), staking, or derivative-based mechanisms to generate consistent returns. Unlike traditional savings accounts, which often offer interest rates below inflation, yield-bearing stablecoins provide a way to grow your digital assets without exposure to market volatility.
The appeal of these instruments is growing rapidly. Analysts predict that yield-bearing stablecoins could expand from their current 6% share to as much as 50% of the total stablecoin market cap. For instance, the market capitalization of the top yield-bearing stablecoin grew from approximately $65 million in February 2024 to over $3.5 billion by February 2025—a staggering increase of over 5,284% in just one year.
How Yield-Bearing Stablecoins Work
Yield-bearing stablecoins combine the stability of traditional fiat currencies with the earning potential of digital assets. They achieve this by tapping into various interest-generating strategies within the blockchain ecosystem. For businesses, these assets enable smarter treasury management and improved capital efficiency. Instead of letting cash reserves sit idle, companies can park funds in stablecoins that earn passive yield while remaining liquid for operational needs.
For individual holders, yield-bearing stablecoins offer a way to earn passive income without the risks associated with volatile cryptocurrencies. By simply holding these tokens, users can generate returns while maintaining the ability to quickly access or transfer their funds. This functionality is further enhanced through integration with DeFi platforms like Aave, Compound, and MakerDAO, which allow for additional financial activities such as lending, borrowing, or leveraging assets.
How to Start Earning with Yield-Bearing Stablecoins
Choose Your Yield-Bearing Stablecoin
Several reliable options are available for beginners:
- sDAI: Operates on the Ethereum network, offering around 3.5% yield through MakerDAO’s DSR (Dai Savings Rate).
- aUSD: Available on Ethereum and Polygon, providing approximately 2-3% yield via Aave lending protocols.
- USDY: Also on Ethereum, yielding about 5% backed by short-term U.S. Treasuries through Ondo Finance.
- USDM: Ethereum-based, with roughly 4.5% yield supported by real-world assets via Mountain Protocol.
- YLDS: Functions on the Provenance Blockchain, offering around 3.85% yield and registered with the U.S. SEC.
Set Up a Crypto Wallet
You’ll need a compatible crypto wallet to hold and manage your assets:
- MetaMask: Ideal for Ethereum and Polygon-based tokens.
- Coinbase Wallet: User-friendly and supports sDAI and aUSDC.
- Phantom: Suitable for Solana-based options.
- Keplr: Recommended for tokens on the Provenance Blockchain, such as YLDS.
Always remember to securely store your seed phrase and never share it with anyone.
Acquire Stablecoins
Purchase base stablecoins like USDC, DAI, or USDT using trusted on-ramp services. You can then exchange these for yield-bearing versions through official platforms such as Ondo Finance, Mountain Protocol, or Figure Markets. Note that some platforms may require KYC (Know Your Customer) verification, especially for tokens linked to real-world assets.
Convert to Yield-Bearing Versions
Once you have standard stablecoins, convert them to their yield-generating counterparts:
- Deposit USDC into Aave to receive aUSDC.
- Lock DAI in MakerDAO’s DSR to obtain sDAI.
- Use Ondo Finance to swap USDC for USDY.
- Onboard with Mountain Protocol to acquire USDM.
- Deposit USD with Figure Markets to get YLDS.
Ensure you are interacting only with official websites and verified smart contracts to avoid scams.
Manage Your Earnings
You can choose to hold your yield-bearing stablecoins for compounding interest, redeem them back into standard stablecoins or fiat currency, or reinvest into other DeFi strategies once you gain more experience.
Mechanisms for Yield Generation
How do these stablecoins generate returns while maintaining price stability? Four primary mechanisms are commonly used:
Crypto Derivative Strategies
Some advanced stablecoins employ derivative strategies to earn yields. For example, Ethena Labs’ sUSDe uses a delta-neutral perpetual futures strategy. The protocol hedges positions in perpetual futures contracts and collects funding fees under favorable market conditions. This approach can deliver higher annual percentage yields (APYs) but involves greater complexity and requires precise risk management.
DeFi Native Yield Farming
Yield farming involves locking crypto tokens in DeFi protocols to earn rewards. These tokens are often lent to borrowers who pay interest, with a portion of the earnings distributed to liquidity providers. Platforms like Curve Finance facilitate yield farming across multiple blockchains, using unique algorithms to enhance liquidity efficiency and provide deeper liquidity pools than many competitors.
Real-World Assets and Traditional Finance
Tokenized versions of traditional financial instruments, such as treasury bills and corporate bonds, allow stablecoins to generate yield from real-world assets. For instance, BlackRock’s BUILD fund invests in U.S. Treasury bills, cash, and repurchase agreements, enabling token holders to earn yields while benefiting from blockchain efficiency and accessibility.
Staking and Yield Transfer
Some protocols use yield-generating crypto collateral, like staked ETH, to mint stablecoins. The rewards from staking are then redirected to stablecoin holders. Lybra Finance’s eUSD is an example; it is borrowed against staked ETH collateral, and the staking rewards are automatically distributed to eUSD holders.
Case Study: YLDS by Figure Markets
In February 2025, Figure Markets launched YLDS, the first yield-bearing stablecoin registered as a public security with the U.S. Securities and Exchange Commission (SEC). Unlike traditional stablecoins such as USDT or USDC, which do not distribute interest earned on reserves, YLDS is designed to provide both stability and yield.
YLDS is pegged 1:1 to the U.S. dollar and offers an annual yield of approximately 3.85%, calculated as the Secured Overnight Financing Rate (SOFR) minus 0.50%. Interest accrues daily and is paid monthly in U.S. dollars or additional YLDS tokens. It operates on the Provenance Blockchain, allowing for peer-to-peer transfers and 24/7 trading.
However, YLDS carries unique risks. It is backed by prime money market fund securities, including private assets like asset-backed securities, which are riskier than tokenized government-backed funds from entities like BlackRock or Franklin Templeton. Additionally, YLDS lacks ringfenced protection, meaning its reserves are not necessarily separate from issuer liabilities in case of bankruptcy.
Comparison with Money Market Funds
While YLDS offers a nearly 4% yield—making it more attractive than non-yielding stablecoins—it falls short of tokenized prime money market funds, which provide yields of 4.5% or more with lower-risk government securities. For example, Franklin Templeton’s tokenized money market fund offers yields exceeding 5%, backed by U.S. government securities and accessible to retail investors.
Yield-Bearing Stablecoins vs. Traditional Money Market Funds
Traditional money market funds and high-yield savings accounts offer similar returns by investing in short-term, low-risk assets, often with regulatory protections like FDIC insurance. However, they come with limitations:
- Limited Access: Traditional instruments often have minimum balance requirements, restricted trading hours, and complex onboarding processes.
- Lack of Blockchain Integration: Money market funds cannot seamlessly interact with DeFi applications or smart contracts, limiting their utility in a tokenized economy.
- Slow Evolution: Traditional finance operates on legacy systems, unable to offer the instant, borderless transactions characteristic of crypto-native solutions.
Yield-bearing stablecoins bridge this gap by providing returns comparable to money market funds while offering on-chain liquidity, smart contract compatibility, and 24/7 global accessibility.
The Future of Yield-Bearing Stablecoins
Evolving Yield Models
Future stablecoins may adopt hybrid models, combining off-chain treasury yields with on-chain lending or staking rewards. This approach could optimize returns while mitigating risks, creating more efficient financial instruments for both institutional and retail users.
Regulatory Developments
As regulatory frameworks become clearer, the market may diverge into fully compliant, institution-friendly stablecoins and decentralized, permissionless alternatives. The former will cater to enterprises seeking regulatory certainty, while the latter will appeal to users prioritizing financial sovereignty.
Integration with Traditional Finance
Corporate treasuries might soon seamlessly transition funds between bank accounts and yield-bearing stablecoins, earning passive income without sacrificing liquidity. With financial giants like BlackRock and PayPal exploring tokenized assets, stablecoins could become mainstream financial instruments integrated into traditional banking systems.
Expanded Use Cases
Yield-bearing stablecoins could serve as collateral for loans, liquidity for trading, and even payment methods for everyday transactions. As wallets, payment apps, and point-of-sale systems adopt them, the boundary between digital assets and traditional finance will continue to blur.
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Frequently Asked Questions
What are yield-bearing stablecoins?
Yield-bearing stablecoins are digital assets pegged to a stable value, like the U.S. dollar, that generate passive income through mechanisms such as DeFi lending, staking, or real-world asset backing. They allow holders to earn returns without exposure to market volatility.
How do yield-bearing stablecoins maintain their peg?
These stablecoins maintain their peg through collateralization, algorithmic mechanisms, or backing by real-world assets. The yield generation strategies are designed to operate without compromising the stable value, often using over-collateralization or hedging techniques.
Are yield-bearing stablecoins safe?
While they offer attractive returns, risks include smart contract vulnerabilities, regulatory changes, and the stability of the underlying assets. It's crucial to research the platform, understand the asset backing, and use only verified contracts.
Can I use yield-bearing stablecoins in DeFi protocols?
Yes, many yield-bearing stablecoins are compatible with DeFi platforms, allowing you to lend, borrow, or provide liquidity. This interoperability enhances their utility and potential for additional earnings.
How do I convert standard stablecoins to yield-bearing versions?
You can convert stablecoins like USDC or DAI into yield-bearing versions through official platforms such as Aave, MakerDAO, or Ondo Finance. The process typically involves depositing the base stablecoin into a protocol to receive the yield-bearing token.
What is the difference between yield-bearing stablecoins and money market funds?
Yield-bearing stablecoins offer on-chain liquidity, 24/7 accessibility, and compatibility with smart contracts, while money market funds are traditional instruments with limited integration to blockchain ecosystems. However, money market funds may provide lower-risk exposure through government-backed securities.
Conclusion
Yield-bearing stablecoins represent a significant advancement in digital finance, proving that stability does not require stagnation. By merging the low volatility of traditional stablecoins with the earning potential of interest-bearing assets, they open the door to crypto-native income streams without speculative risks. As the ecosystem evolves, these instruments are poised to become integral components of both decentralized and traditional finance, making money work smarter for everyone.