If you hold a stablecoin like USDT, USDC, or DAI, you maintain a steady dollar-like balance, but with no added return. That’s because these “conventional” stablecoins are built to mirror the dollar, not to generate income. Yield-bearing stablecoins are different. They hold a $1 peg while passing on returns from sources like Treasuries or on-chain lending. It sounds simple, but the rules, redemption terms, and safety checks may vary widely. In this guide, we break down how they work in 2025, where the yield comes from, who can actually access them, and the risks you need to weigh before moving money in.
KEY TAKEAWAYS
➤ Yield-bearing stablecoins combine dollar stability with returns, but structures, risks, and access vary significantly.
➤ The main yield-bearing stablecoin models currently include tokenized Treasuries, DeFi wrappers, and synthetic products.
➤ Regulatory restrictions block many U.S. and EU retail users and restrict direct access to Treasury-backed stablecoins.
➤ Returns fluctuate with markets, while smart contract, liquidity, and platform risks remain constant considerations for holders.
- What are yield-bearing stablecoins?
- How do yield-bearing stablecoins generate yield?
- Types of yield-bearing stablecoins
- Can you earn passive income with yield-bearing stablecoins?
- Taxes you should expect
- Due diligence checklist
- What are the risks of yield-bearing stablecoins?
- Which stablecoins pay yield?
- When a yield-bearing stablecoin makes sense
- Frequently asked questions
What are yield-bearing stablecoins?
Yield-bearing stablecoins are cryptocurrencies pegged to a fiat like the U.S. dollar, but unlike regular stablecoins, they also pay yield.
These assets combine price stability with a built-in return, so your balance targets $1 while quietly generating a passive income. This way, your balance can grow over time without requiring any extra effort.
SponsoredAs of mid-2025, yield-bearing stablecoins are surging in popularity. For perspective, supply climbed from about $1.5 billion in early 2024 to more than $11 billion — roughly 4.5% of the stablecoin market.
The appeal is clear. Traditional stablecoins pay 0% interest, even while U.S. rates hover near 4–5%. That gap left holders missing out on an estimated $9 billion in yearly yield. Yield-bearing stablecoins step in to close that gap as they pass along interest income instead of leaving it on the table.
How do yield-bearing stablecoins generate yield?
Put simply, they get their backing assets to “work” and earn interest. Common strategies include lending stablecoins in DeFi, providing liquidity for fees, or investing reserves in real-world assets.
- DeFi lending: The stablecoin’s funds are lent out on decentralized platforms (like Aave or Compound), and interest paid by borrowers flows back to holders.
- Liquidity provision: Funds are deposited into DEX liquidity pools or staked, which then generate trading fees or incentive rewards that feed the stablecoin’s yield.
- Real-world investments: The stablecoin is backed by traditional assets (e.g., U.S. Treasury bills), and the interest from those investments is passed on to token holders.
Overall, the process is usually quite easy for you as a user given that many yield-bearing stablecoins don’t require any action beyond holding them. Interest accrues automatically in your wallet without needing to manually stake or lock up funds.
Types of yield-bearing stablecoins
Three main models dominate the market as of mid-2025:
Tokenized treasuries and money market funds
These are backed by assets such as short-term U.S. Treasuries or bank deposits. The yield from those holdings is passed back to you, either by raising your token balance or adjusting its value. In practice, they work like blockchain versions of cash-equivalent funds.
DeFi savings wrappers
Protocols like Sky (formerly MakerDAO) let you lock stablecoins, such as DAI, into a savings module. Wrapping them into tokens like sDAI makes your balance grow automatically at a rate set by protocol governance.
Synthetic yield models
A smaller group of projects uses derivatives strategies, staking rewards, or funding rates from crypto markets. These can deliver higher returns, but payouts vary and carry more volatility.
Sponsored Sponsored| Model | Backing | How yield is paid | Typical return | Key risks |
| Tokenized treasuries and money market funds | Short-term U.S. treasuries, bank deposits, money market funds | Balance increases or token value adjusts | Similar to treasury yields (4–5% in 2025) | Regulatory oversight, redemption limits |
| DeFi savings wrappers | Stablecoins locked in protocol savings modules (e.g., DAI in Sky) | Balance grows automatically via wrapped tokens (e.g., sDAI) | Protocol-set rates (3–5% in 2025) | Smart-contract risk, governance changes |
| Synthetic yield models | Crypto derivatives, staking rewards, funding rates | Payouts tied to market conditions | Potentially higher but variable (5–15%+) | Market volatility, strategy failure |
Can you earn passive income with yield-bearing stablecoins?
Yes — but the details depend on the product. Here’s the typical path:
1. Choose your stablecoin type
- Tokenized treasury or money-market coins suit lower-risk preferences.
- DeFi wrappers such as sDAI fit those comfortable with on-chain risk.
- Synthetic models like sUSDe offer higher potential yield but more volatility.
2. Acquire the stablecoin
You can usually buy on centralized exchanges (with KYC) or directly through a protocol. Access often depends on geography. For instance, most U.S. retail users cannot buy tokenized treasury coins because regulators treat them as securities.
Minting directly from issuers is also limited. So, retail users typically purchase in secondary markets rather than depositing dollars with the issuer.
3. Hold in your wallet
Many yield-bearing stablecoins accrue income automatically. Some rebase your balance daily, others grow in value through wrapped tokens. Simply holding them is often enough.
4. Use in DeFi for extra income
Beyond the built-in yield, you can place these tokens in lending markets, liquidity pools, or structured products. These add complexity and risk, so assess carefully before layering strategies.
Most jurisdictions treat yield as taxable income when credited. Record the timing and amount of each increase to avoid reporting issues later.
Taxes you should expect
Sponsored- United States: The IRS treats staking-style rewards as ordinary income at receipt (Rev. Rul. 2023-14). New broker reporting rules and Form 1099-DA apply to covered 2025 transactions. You also see capital gains or losses when you dispose of tokens later. Keep per-wallet cost basis.
- EU and global: DAC8 and the OECD CARF extend cross-border crypto reporting. Platforms must report your activity; first major reports start in 2026 across many jurisdictions. Local income/capital-gains rules still apply.
- UK: HMRC guidance often treats DeFi returns as income, with disposals subject to capital gains tax. Check your facts pattern.
None of this is tax advice. Always consult a qualified professional if you are transacting in moderate to large volumes.
Due diligence checklist
Before you put money into a yield-bearing stablecoin, run through this quick list:
- Issuer and jurisdiction: Find out where the issuer is based, what licenses it holds, and which regulator oversees it.
- Eligibility and restrictions: Check if the stablecoin is available in your country. For instance, some tokens block U.S. residents or restrict transfers into certain regions.
- Reserves and proof: Look for audits or attestations of reserves. Treasury-backed coins should publish holdings and custodians, while DeFi wrappers should show how funds flow through smart contracts.
- Smart contract history: Review audits, bug bounties, and any past exploits. Tokens like OUSD had security failures before tightening controls.
- Liquidity and market support: See where the token trades, how deep the markets are, and how quickly you can exit a $100k position without heavy slippage.
- Redemption terms: Check how redemptions work — who handles them, how fast they process, and what fees apply. Some issuers promise next-business-day settlement, others set longer timelines.
- Governance and control: For DeFi wrappers, look at protocol governance. Rates can change with governance votes, and that directly affects your returns.
- Tax records: Keep a log of every rebase or token credit. Many tax systems treat them as income at receipt, and you may owe again when you sell.
What are the risks of yield-bearing stablecoins?
Despite their appeal, yield-bearing stablecoins are not risk-free. Along with returns come a variety of risks and trade-offs that users should understand:
- Smart contract flaws: Most yield-bearing stablecoins rely on code to move funds and credit yield. A bug or exploit could drain reserves, as seen in past hacks. Audits help, but they don’t guarantee safety.
- Dependency on platforms: If the stablecoin’s yield comes from DeFi protocols or lending pools, your exposure also includes those platforms. A liquidity crunch, exploit, or collapse can ripple straight into the token.
- Regulation in flux: Some yield-bearing stablecoins run under specific licenses, but many still operate in a gray zone. If regulators classify them as securities, you may face restrictions or outright bans depending on where you live.
- Changing yield: Rates can move with markets. Treasury-backed coins fall when yields on T-bills drop. DeFi-backed models shrink when lending demand dries up. Returns aren’t fixed and may slide lower over time.
- Issuer control: In most cases, a company or team manages the reserves. That means you are trusting them to allocate funds wisely and keep the peg intact. Mismanagement or risky bets could break that trust.
- Liquidity gaps: Yield-bearing stablecoins are still young and not as widely listed as USDT or USDC. If volumes are thin, selling in a hurry could mean poor prices or limited exit options.
To cut a long story short, there’s no free lunch — the extra yield comes with additional complexity and exposure. That’s why it’s crucial to perform due diligence on how a yield-bearing stablecoin works under the hood and assess whether the returns justify the risks involved.
Which stablecoins pay yield?
Several notable stablecoins now offer yield to holders, each using a different model to generate and distribute that interest. Noteworthy examples include:
Sponsored Sponsored- USDY (Ondo Finance): A stablecoin backed 1:1 by short-term U.S. Treasury notes and bank deposits. Simply holding USDY earns you yield automatically — the interest from those Treasuries is built into the token’s value (its price gradually appreciates) with no staking required.
- USDM (Mountain Protocol): A stablecoin also backed by U.S. Treasury bills, but using a rebasing design. Your USDM balance increases daily to reflect the interest earned (instead of the price changing). This project is fully regulated in Bermuda.
- OUSD (Origin Dollar): A DeFi-native stablecoin backed by a basket of other stablecoins (USDT, USDC, DAI). OUSD’s smart contracts deploy those reserves into yield-generating strategies like Aave and Convex, and then automatically distribute the earnings to OUSD holders.
When a yield-bearing stablecoin makes sense
Yield-bearing stablecoins are the right fit for you want cash-like exposure with some return, and you accept extra moving parts versus standard stablecoins. The smart approach is to keep allocations modest, spread exposure across different issuers and models, and always know your exit path.
For U.S. and EU residents, access is narrower: most retail-legal options still pay 0%. You usually need to qualify for securities-style products (or find compliant offshore access) to earn yield. In short, these tokens can work, albeit they should be one piece of a diversified plan, not the whole plan.
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