Key takeaways
Yield-generating stablecoins consist of treasury-backed, DeFi, and synthetic variations.
Both US and EU regulations prohibit issuer-paid interest; access is frequently limited.
Rebases and rewards are taxed as income upon receipt.
Risks persist: regulation, market fluctuations, contracts, and liquidity.
The quest for passive income has consistently led investors toward assets like dividend stocks, real estate, or government bonds.
In 2025, the crypto market introduces a new option: yield-generating stablecoins. These digital tokens are crafted not only to maintain their dollar value but also to create a consistent income stream while held in your wallet.
However, it’s crucial to comprehend what these stablecoins entail, how the yield is generated, and the relevant legal and tax implications.
Let’s explore this step-by-step.
What are yield-bearing stablecoins?
Standard stablecoins, like Tether’s USDt (USDT) or USDC (USDC), are linked to the dollar but do not provide any returns for holding them. Yield-bearing stablecoins, on the other hand, distribute returns from underlying assets or strategies directly to tokenholders.
Currently, there are three primary models:
Tokenized treasuries and money market funds: Backed by stable assets such as short-term US Treasurys or bank deposits, the yield produced is allocated back to tokenholders, often by boosting the token balance or altering its value. Essentially, think of them as blockchain-enhanced versions of traditional cash-equivalent funds.
Decentralized finance (DeFi) savings wrappers: Platforms like Sky (previously MakerDAO) permit users to lock stablecoins, like Dai (DAI), into a “savings rate” module. When transformed into tokens like sDAI, your balance appreciates over time at a rate established by the protocol’s governance.
Synthetic yield models: Certain innovative stablecoins rely on derivatives strategies to generate yield from crypto market funding rates or staking rewards. While returns may be higher, they are subject to market volatility.
Can you earn passive income with yield-bearing stablecoins?
The answer is yes, although the specifics can differ by product. Here’s a typical process:
1. Choose your stablecoin type
If you prefer lower risk and traditional backing, consider tokenized treasury-backed coins or money-market fund tokens.
If you’re comfortable with DeFi risks, look into sDAI or similar savings wrappers.
For potentially higher yield (with increased volatility), synthetic stablecoins like sUSDe could be suitable.
2. Buy or mint the stablecoin
Most tokens can be obtained via centralized exchanges — which have Know Your Customer (KYC) protocols — or directly from a protocol’s site.
However, certain issuers limit access by geography. For instance, many US retail clients cannot purchase tokenized treasury tokens due to securities laws (as they are classified as securities, limited to qualified or offshore investors).
Additionally, minting stablecoins is usually restricted. To mint, you deposit dollars with the issuer, who then creates new stablecoins. However, this option is often confined to select parties; many issuers only permit banks, payment firms, or qualified investors to mint.
For example, Circle (the issuer of USDC) allows only approved institutional partners to mint directly; retail users must acquire USDC already in circulation.
3. Hold or stake in your wallet
Once acquired, merely holding these stablecoins in your wallet might suffice to earn yield. Some utilize rebasing (your balance increases daily), whereas others employ wrapped tokens that appreciate over time.
4. Use in DeFi for extra earnings
Beyond built-in yield, some holders engage these tokens in lending protocols, liquidity pools, or structured vaults to create additional income avenues. This adds complexity and risk, so approach cautiously.
5. Track and record your income
Although the tokens appreciate automatically, tax regulations in most countries classify those increments as taxable income upon crediting. Maintain accurate records of when and how much yield you obtained.
Did you know? Some yield-bearing stablecoins provide returns via token appreciation instead of additional tokens, meaning your balance remains unchanged, but each token becomes redeemable for more underlying assets over time. This nuance can impact how taxes are assessed in various jurisdictions.
Examples of yield-bearing stablecoins
Not every offering that resembles a yield-bearing stablecoin truly qualifies. Some are genuine stablecoins, others are synthetic dollars, and some are tokenized securities. Let’s clarify their distinctions:
True yield-bearing stablecoins
These stablecoins are pegged to the US dollar, supported by reserves, and intended to deliver yield.
USDY (Ondo Finance): A tokenized note collateralized by short-term treasuries and bank deposits, available exclusively to non-US users with complete KYC and Anti-Money Laundering (AML) vetting. Transfers into or within the US are prohibited. USDY operates like a rebasing instrument that reflects Treasury yields.
sDAI (Sky): A wrapper around DAI placed in the Dai Savings Rate. Your balance expands at a variable rate decided by Maker governance. It boasts extensive integration within DeFi but is reliant on smart contracts and protocol decisions — rather than insured deposits.
Synthetic stablecoins
These imitate stablecoins but utilize derivatives or alternative mechanisms instead of direct reserves.
sUSDe (Ethena): A “synthetic dollar” stabilized by long spot crypto alongside short perpetual futures. Holders of sUSDe receive returns from funding rates and staking rewards. However, returns can shrink rapidly, with risks stemming from market fluctuations and exchange exposure.
Tokenized cash equivalents
These are not categorized as stablecoins but are frequently utilized in DeFi as “onchain cash.”
Tokenized money market funds (e.g., BlackRock’s BUIDL): Although not a true stablecoin, these are tokenized shares in money market funds that distribute dividends monthly in the form of new tokens. Access is limited to qualified investors and institutions, rendering them popular in DeFi protocols but generally inaccessible to retail investors.
The 2025 stablecoin rulebook you should know
Regulation plays a pivotal role in determining your ability to hold specific yield-bearing stablecoins.
United States (GENIUS Act)
In 2025, the US enacted the GENIUS Act, its inaugural federal stablecoin legislation. A significant provision prohibits issuers of payment stablecoins from providing interest or yield directly to holders.
This implies that tokens such as USDC or PayPal USD (PYUSD) cannot reward you merely for holding them.
The aim is to prevent stablecoins from competing with banks or resembling unregistered securities.
Consequently, US retail investors cannot legally earn passive yield from mainstream stablecoins. Yield-bearing variations are typically constructed as securities and reserved for qualified investors or offered offshore to non-US users.
European Union (MiCA)
Within the Markets in Crypto-Assets (MiCA) framework, issuers of e-money tokens (EMTs) are also forbidden from providing interest. The EU strictly classifies stablecoins as digital payment instruments rather than vehicles for savings.
United Kingdom (ongoing rules)
The UK is finalizing its own stablecoin framework, concentrating on issuance and custody. While there isn’t yet a formal ban, the policy trend aligns with that of the US and EU: Stablecoins should prioritize payments over yield.
The clear message: Always verify whether you are legally permitted to acquire and hold a yield-bearing stablecoin in your region.
Tax considerations for yield-bearing stablecoins
Tax implications are as vital as selecting the right coin.
In the US, staking-style rewards, including rebases, are taxed as ordinary income upon receipt, no matter if they are sold later. Should you dispose of those tokens at a different value, that triggers capital gains tax. Moreover, 2025 has introduced new reporting rules necessitating crypto exchanges to issue Form 1099-DA, while taxpayers are required to track their cost basis per wallet, making precise record-keeping paramount.
In the EU and globally, emerging reporting guidelines (DAC8, CARF) will lead crypto platforms to automatically relay your transactions to tax authorities starting in 2026.
In the UK, HMRC guidance categorizes many DeFi returns as income, with token disposals also being liable for capital gains tax.
Risks to keep in mind if you are considering yield on your stablecoins
While yield-bearing stablecoins may seem appealing, they come with risks:
Regulatory risk: Laws can swiftly change, potentially blocking access or terminating products.
Market risk: For synthetic models, yield hinges on unpredictable crypto markets and may vanish suddenly.
Operational risk: Smart contracts, custody arrangements, and governance decisions can all impact your holdings.
Liquidity risk: Certain stablecoins limit redemptions to specific investors or impose lock-up periods.
Thus, while pursuing yield on stablecoins can be beneficial, it isn’t equated to securing funds in a bank account. Each model—whether Treasury-backed, DeFi-based, or synthetic—has its unique compromises.
The most prudent strategy is to size positions thoughtfully, diversify across issuers and strategies, and always stay vigilant on regulation and redemption policies. The best approach is to view stablecoin yields as an investment product, not a risk-free savings option.
This article does not provide investment advice or recommendations. Every investment and trading decision encompasses risk, and readers should conduct their own research prior to making a decision.
