Stablecoins are powerful tools for businesses and individuals seeking price stability amid cryptocurrency volatility. But these stable digital assets can do more than maintain value.
A new category – yield-bearing stablecoins – adds income generation to this stability, creating assets that maintain value while earning returns for holders.
Yield-bearing stablecoins maintain a stable value (typically pegged to the US dollar) while generating returns. Unlike standard stablecoins such as USDC or USDT that only hold their value, yield-bearing stablecoins accrue interest over time.
They function similarly to interest-bearing savings accounts. While regular stablecoins sit in wallets without earning interest and gradually lose purchasing power due to inflation, yield-bearing stablecoins earn passive returns, making them more comparable to fiat currencies held in interest-generating accounts.
The core concept remains straightforward: earn returns on dollar-pegged digital assets while maintaining price stability for business operations or investment security.
Yield-bearing stablecoins have grown to $11 billion in circulation as of mid-2025, now representing 4.5% of the total stablecoin market. This marks substantial growth from just $1.5 billion and a 1% market share at the start of 2024.
This increase shows strong demand for financial instruments that provide both stability and returns.
However, traditional stablecoins like USDT and USDC continue to dominate the market with over $200 billion in circulation, which means that many holders miss out on potential returns. With current US Federal Reserve interest rates at 4.3%, stablecoin holders are potentially foregoing more than $9 billion in annual yield.
Yield-bearing stablecoins generate returns through several methods, each with distinct risk and return characteristics. Here are the primary methods:
One common approach involves lending stablecoins on decentralized finance (DeFi) platforms like Aave or Compound. When you deposit your stablecoins into these lending platforms, they get lent out to borrowers who pay interest. A portion of this interest is then passed back to you as the original depositor.
For example, when you hold tokens like aUSDC (from Aave) or cUSDC (from Compound), you're essentially holding a receipt of your deposit that automatically increases in value as interest accrues.
Some yield-bearing stablecoins place funds into decentralized exchange (DEX) liquidity pools or staking systems to earn trading fees and incentives. These platforms reward liquidity providers with a share of transaction fees or additional tokens, generating returns that are passed on to stablecoin holders.
A growing category of yield-bearing stablecoins derives returns from traditional financial instruments. These stablecoins are backed by real-world assets like US Treasury bills and distribute the interest earned on these assets to token holders. This approach connects traditional finance with blockchain technology, offering a familiar yield source with the advantages of digital assets.
Several notable yield-bearing stablecoins have gained traction in the market, each using different strategies to generate returns:
USDY is backed by short-term US Treasury securities and bank deposits. Holders automatically accrue yield without needing to stake, click, or take any action. The yield is built directly into the token. Available on multiple blockchain networks, including Ethereum, Solana, and Arbitrum, USDY offers straightforward returns on dollar-pegged assets.
USDM takes a different approach while still being backed by US Treasury bills. It uses a rebasing model where the number of tokens in your wallet increases daily to reflect the yield earned. Fully regulated in Bermuda, it offers a compliant option for stablecoin savings.
OUSD is a DeFi-native stablecoin backed by other stablecoins like USDT, USDC, and DAI. It puts these assets to work in platforms like Aave and Convex, then automatically distributes the yield to holders. No staking or locking is required. Your balance simply increases over time, making it a user-friendly option in the Ethereum ecosystem.
Yield-bearing stablecoins allow users to earn steady returns on their digital asset holdings. By holding these tokens, users turn idle assets into income-generating tools. This appeals to investors seeking consistent passive income without active management or trading.
Like traditional stablecoins, yield-bearing stablecoins maintain their peg to fiat currencies such as the US dollar or euro. This peg minimizes volatility risks common with other crypto assets. Investors can earn yield while maintaining stable asset values, making them a safer choice for risk-averse users.
These stablecoins boost capital efficiency within DeFi ecosystems. They can often be used as collateral in lending protocols or other DeFi applications, allowing users to earn interest while simultaneously accessing liquidity. This dual utility maximizes asset productivity and creates additional financial opportunities.
Returns from sources like the US Federal Reserve typically limit access to US nationals or entities with US financial market access. Yield-bearing stablecoins remove these location limitations, allowing global users to access secure yields in their preferred currency. This tokenization of yields opens access to secure, interest-bearing assets, particularly for individuals in regions with less stable financial systems.
While yield-bearing stablecoins offer significant benefits, they also come with risks that businesses and individuals should understand:
Many yield-bearing stablecoins rely on smart contracts to generate and distribute yield, which introduces potential vulnerability to bugs or security issues. For example, OUSD experienced a hack in 2020 due to a contract vulnerability. While security measures have improved, this highlights that DeFi assets require careful evaluation.
Returns often depend on the underlying platforms used to generate yield. If a protocol like Aave or Convex faces issues or liquidity problems, it could affect your holdings. Understanding this chain of dependencies is crucial for risk assessment.
Regulatory status varies across yield-bearing stablecoins. Some operate under clear regulatory frameworks (like USDM in Bermuda), while others exist in less defined regulatory contexts. If certain tokens are classified as securities, they could face restrictions in various markets.
Unlike fixed-rate bonds, the yield on these stablecoins can fluctuate based on market conditions. If DeFi lending rates drop or Treasury yields fall, your yield could decrease accordingly.
At alfred, we're building the infrastructure that connects traditional payment rails to stablecoin rails throughout Latin America, making us the ideal partner for businesses ready to adopt yield-bearing stablecoins in their operations.
Our infrastructure is supported by:
As yield-bearing stablecoins continue gaining regulatory clarity, their role in business financial strategies will only grow.
By working with alfred, companies can confidently incorporate these financial tools into their operations, optimizing treasury functions, improving cross-border transactions, and turning idle digital assets into productive components of their financial strategy.
Ready to put yield-bearing stablecoins to work for your business? Contact alfred today to discuss how we can integrate these financial tools into your business strategy.
Q: How much yield can I expect from yield-bearing stablecoins?
A: Yields vary based on the specific stablecoin and market conditions. Currently, yields range from 1%-10% annually, though these rates fluctuate based on underlying strategies and market demand.
Q: Are yield-bearing stablecoins safe to use?
A: Yield-bearing stablecoins carry risks including smart contract vulnerabilities and regulatory uncertainty. Research each platform's security measures and track record before investing.
Q: Do I need to stake or lock up my stablecoins to earn yield?
A: Some stablecoins, like OUSD or USDY, automatically generate yield by holding them in your wallet. Others might require staking or depositing into specific protocols
Q: How do yield-bearing stablecoins compare to traditional fixed deposits or money market funds?
A: Yield-bearing stablecoins offer similar benefits to fixed deposits or money market funds but with greater accessibility (no minimum deposits, instant liquidity) and borderless availability. They typically carry higher technical and regulatory risks than traditional financial products.
Q: How can businesses in Latin America get started with yield-bearing stablecoins?
A: Contact alfred for a consultation on how to integrate yield-bearing stablecoins into your business operations, treasury management, or payment systems.