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Your savings account often pays less than inflation.
In web3, stablecoins came about as a means to protect against crypto market volatility without actually exiting from it (and not as a dividend-earning financial vehicle). But what if your stablecoins could do more than just sit idle? What if stablecoins could generate income (similar to savings accounts but far greater)?
That’s where yield-bearing stablecoins come in.
Yield-bearing stablecoins essentially transform stablecoins from passive digital dollars into productive assets. As more investors seek stable yet rewarding options, the appeal of yield-bearing stablecoins continues to grow.
JPMorgan analysts predict that yield-bearing stablecoins could expand from their current 6% share to as much as 50% of the total stablecoin market cap.
The surge in the market cap of the top yield bearing stablecoin is a strong indicator of its growing demand in the crypto space. For context, its market cap grew from around $65 million in February 2024 to crossing $3.5 billion in February 2025, a 5284% growth within a year.
This article explores how yield-bearing stablecoins generate returns, key strategies, comparisons with TradFi, the YLDS case study, and their future in DeFi and TradFi.
Yield-bearing stablecoins generate passive income by tapping into DeFi protocols or interest-bearing strategies (DeFi lending, staking rewards, or real-world asset backing). Think of them as your dollar but on autopilot, earning yield while you sleep. They combine the price stability of traditional currencies with the earning potential of digital assets.
For businesses, yield-bearing stablecoins unlock smarter treasury management and improved capital efficiency. Rather than letting cash sit idle, companies can park funds in stablecoins that earn passive yield while remaining liquid for operational needs.
For token holders, yield-bearing stablecoins offer a way to earn passive income without exposing their assets to market volatility. Instead of keeping stablecoins idle, users can put them to work, generating returns while maintaining liquidity.
DeFi platforms like Aave, Compound, and MakerDAO further enhance their utility, allowing holders to lend, borrow, or leverage their assets for additional opportunities in the crypto ecosystem.
Here are some beginner-friendly, reliable options:
Token |
Network |
Typical Yield |
Backed By |
|
sDAI |
Ethereum |
~3.5% |
MakerDAO’s DSR |
|
aUSD |
Ethereum/Polygon |
~2-3% |
Aave lending |
|
USDY |
Ethereum |
~5% |
Short-term U.S. Treasuries (via Ondo) |
|
USDM |
Ethereum |
~4.5% |
Real-world assets via Mountain Protocol |
|
YSDL |
Provenance |
~3.85% |
SEC-registered; SOFR-backed |
You’ll need a crypto wallet that supports the chain your chosen token is on.
Note: Write down your seed phrase and never share it.
Use Transak to buy USDC, DAI, or USDT.
Exchange the crypto you bought on Transak for any yielded-bearing stablecoin. You may need to go through their official platforms:
Note: You may be asked to complete KYC (ID verification), especially for yield-bearing tokens linked to real-world assets.
Once you have USDC or DAI, convert it to the yield-bearing version:
Platform |
Process |
|
Aave |
Deposit USDC → receive aUSDC |
|
Spark/MakerDAO |
Deposit DAI into DSR → receive sDAI |
|
Ondo Finance |
Deposit USDC → receive USDY |
|
Mountain Protocol |
Onboard via their app → receive USDM |
|
Figure Markets |
Deposit USD → receive YLDS |
Important: Make sure you're interacting with official websites and smart contracts.
You can:
How can something be both stable and yield-generating, especially in a market known for its volatility?
The main four mechanisms that allow these stablecoins to generate yield include:
Some advanced stablecoins use derivative strategies to generate returns.
Take Ethena Labs’ sUSDe, for example as it employs a delta-neutral perpetual futures strategy to earn yield.
Ethena’s protocol hedges its position in perpetual futures contracts and collects funding fees when market conditions are favorable. This approach can deliver higher APYs, but it comes with higher complexity and requires precise risk management, making it different from traditional methods like lending on DeFi or holding government bonds.
Yield farming methods use lending and borrowing protocols to lock crypto tokens for a set period to earn rewards, which can range from single-digit returns to triple-digit APYs.
Often, these locked tokens are lent out to borrowers, who pay interest on their loans, and a portion of these earnings then goes back to liquidity providers, making yield farming a way to put idle crypto to work.
Notable DeFi platforms like Curve Finance allow yield farming across multiple blockchains, including Ethereum, Bitcoin, and Polygon.
What sets Curve apart is its unique algorithm, which only adjusts prices when the potential profit exceeds the loss, which enhances liquidity efficiency, allowing it to provide deeper liquidity than most other platforms.
Traditional financial assets and real-world assets (RWAs) bring tokenized versions of classic financial instruments into the crypto space, unlocking new ways such that stablecoins generate yield.
From treasury bills and corporate bonds to real estate and other structured underlying assets, these tokenized investments mirror conventional finance while offering the efficiency and accessibility of blockchain.
A classic example of this kind of yield generation is BlackRock’s BUILD, a digital liquidity fund on Ethereum and other major blockchains. This fund invests all of its total assets in U.S. Treasury bills, cash, and repurchase agreements, allowing token holders to earn yields while maintaining liquidity and security.
Another innovative method taps into yield-generating crypto collateral by using staked assets like Lido’s stETH to mint stablecoins.
Since staked ETH earns rewards, these earnings can be redirected to stablecoin holders, transforming passive collateral into an active yield source.
Lybra Finance’s lending protocol lets users borrow eUSD, a yield-bearing stablecoin, by using staked ETH as collateral. The yield comes from ETH staking rewards, which are automatically distributed to eUSD holders.
In February 2025, Figure Markets introduced YLDS, the first yield-bearing stablecoin registered as a public security with the U.S. Securities and Exchange Commission (SEC).
Most stablecoins, such as Tether (USDT) and USD Coin (USDC), do not distribute the interest earned on their reserves to holders. Figure Markets aimed to address this by creating YLDS, a stablecoin that not only maintains a stable value but also provides yield to its holders.
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 out monthly in either U.S. dollars or additional YLDS tokens.
The stablecoin operates on the Provenance Blockchain, facilitating peer-to-peer transfers and 24/7 trading, with fiat off-ramps available during U.S. banking hours.
One of the key differentiators of YLDS is its asset backing.
While mainstream stablecoins like USDC and PayPal USD maintain conservative reserves, YLDS is backed by prime money market fund securities, which include private assets such as asset-backed securities. These carry a higher risk than tokenized government-backed money market funds from players like BlackRock or Franklin Templeton.
Additionally, YLDS lacks the ringfenced protection that ensures stablecoin reserves remain separate from issuer liabilities in case of bankruptcy.
From a returns perspective, YLDS offers a yield of almost 4%, making it a more attractive option than traditional stablecoins that provide no yield at all. However, it still trails behind tokenized prime money market funds, which offer 4.5% or more, providing investors with higher returns and lower-risk exposure through government-backed securities.
For instance, Franklin Templeton provides tokenized money market funds with yields exceeding 5%, backed by lower-risk government securities and accessible to U.S. retail investors.
While YLDS introduces a new way to generate interest in stablecoins, it comes with trade-offs in risk and return. Investors seeking higher yields with lower risk exposure may find tokenized money market funds a more compelling alternative.
Traditional money market funds and high-yield savings accounts provide comparable returns by investing in short-term, low-risk assets, often with the added security of regulatory protections like FDIC insurance in the U.S. But, these options come with limitations that make them less flexible in today’s digital economy.
One major drawback is limited access. Traditional financial instruments often come with minimum balance requirements, restricted trading hours, and complex onboarding processes that slow things down, making them less convenient for users who need instant liquidity.
Another issue is the lack of integration with blockchain ecosystems. Unlike crypto assets, money market funds can’t seamlessly interact with DeFi applications or be used in smart contracts, which significantly limits their utility in a tokenized economy.
Lastly, the traditional finance sector is slow to evolve. Financial institutions operate on legacy systems, meaning you won’t find a savings product that offers yield while enabling instant, borderless transactions the way crypto-native solutions can.
Yield-bearing stablecoins combine the best of both worlds. They provide returns comparable to money market funds while offering on-chain liquidity, seamless smart contract compatibility, and 24/7 accessibility for anyone, anywhere.
Future stablecoins may adopt a hybrid approach, merging off-chain treasury yields with on-chain lending or staking rewards.
This blend would allow them to optimize returns while reducing risk, creating more efficient and adaptable financial instruments for both institutional and retail users.
As regulatory frameworks solidify, the market may split between fully compliant, institution-friendly stablecoins and more decentralized, permissionless alternatives.
While the former caters to enterprises seeking regulatory certainty, the latter will appeal to users prioritizing financial sovereignty and global accessibility.
The future may see corporate treasuries seamlessly transitioning 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 soon function as mainstream financial instruments, integrating into traditional banking systems.
Yield-bearing stablecoins could become a key building block for DeFi, serving as collateral for loans, liquidity for trading, and even a payment method for everyday transactions.
As wallets, payment apps, and point-of-sale systems embrace them, the gap between digital assets and traditional finance will continue to shrink.
Yield-bearing stablecoins proved that stability doesn’t have to mean stagnation.
By combining the low volatility of traditional stablecoins with the earning potential of interest-bearing assets, yield-bearing stablecoins open the door to crypto-native income streams without the roller coaster risk of speculative tokens.
As always, it’s essential to research the platform behind the token, understand the risks, and start small.
The future of stablecoins is not just about stability but about making money work smarter.