Key takeaways
Yield-generating stablecoins encompass treasury-backed, DeFi, and synthetic models.
US and EU legislation prohibits issuer-paid interest; access is frequently limited.
Rebases and rewards are considered taxable income upon receipt.
Challenges persist: regulation, market fluctuations, contracts, and liquidity.
The quest for passive income has consistently led investors to assets such as dividend stocks, real estate, or government bonds.
In 2025, the crypto landscape introduces another player: yield-generating stablecoins. These digital assets aim to not only retain their dollar value but also produce consistent income while stored in your wallet.
However, before diving in, it’s crucial to grasp what these stablecoins actually are, how the yield is generated, and the relevant legal and tax implications.
Let’s break it down step-by-step.
What are yield-bearing stablecoins?
Conventional stablecoins like Tether’s USDt (USDT) or USDC (USDC) are dollar-pegged but do not offer any returns for holding them. Yield-bearing stablecoins are distinct: they automatically distribute earnings from underlying assets or strategies to token holders.
There are three primary models currently in use:
Tokenized treasuries and money market funds: These stablecoins are secured by stable assets like short-term US Treasurys or bank deposits. The yield from these assets is returned to token holders, often through increasing the token balance or adjusting its value. Essentially, think of them as blockchain-encased versions of conventional cash-equivalent funds.
Decentralized finance (DeFi) savings wrappers: Protocols such as Sky (formerly MakerDAO) enable users to lock stablecoins like Dai (DAI) into a “savings rate” module. When wrapped into tokens like sDAI, your balance increases over time at a rate established by the protocol’s governance.
Synthetic yield models: Some cutting-edge stablecoins, including those utilizing derivatives strategies, generate yield from crypto market funding rates or staking rewards. Returns can be higher but may also fluctuate based on market conditions.
Can you earn passive income with yield-bearing stablecoins?
The quick answer is yes, although specifics can vary by product. Here’s the general procedure:
1. Choose your stablecoin type
If you prefer lower risk and traditional support, consider tokenized treasury-backed coins or money-market fund tokens.
If you accept DeFi-associated risks, look at sDAI or similar savings wrappers.
For potentially higher yields (with greater volatility), synthetic stablecoins like sUSDe may be appropriate.
2. Buy or mint the stablecoin
Many of these tokens can be obtained either on centralized exchanges — which require Know Your Customer (KYC) verification — or directly through a protocol’s website.
However, some issuers impose geographic restrictions. For instance, numerous US retail users are unable to purchase tokenized treasury coins due to securities regulations (as they’re classified as securities and restricted to qualified or offshore investors).
Additionally, minting stablecoins often has limitations. To mint, you deposit dollars with the issuer, who then creates new stablecoins. But this option isn’t universally available; many issuers restrict minting to banks, payment firms, or qualified investors.
For instance, Circle (the issuer of USDC) permits only approved institutional partners to mint directly. Retail users must acquire already-circulating USDC instead of sending dollars to Circle.
3. Hold or stake in your wallet
After purchase, simply holding these stablecoins in your wallet may suffice to earn yield. Some utilize rebasing (where your balance increases daily), while others leverage wrapped tokens that ascend in value over time.
4. Use in DeFi for extra earnings
Beyond the inherent yield, some holders engage these tokens in lending protocols, liquidity pools, or structured vaults to create additional revenue streams. This approach adds complexity and risk, so proceed with caution.
5. Track and record your income
Although the tokens accumulate automatically, tax regulations in most countries classify these increases as taxable income upon crediting. Maintain accurate records of when and how much yield you earned.
Did you know? Some yield-bearing stablecoins provide returns through token appreciation rather than additional tokens, implying your balance remains constant, but each token becomes redeemable for more underlying assets over time. This subtle distinction can influence tax calculations in certain jurisdictions.
Examples of yield-bearing stablecoins
Not every product resembling a yield-bearing stablecoin genuinely qualifies as one. Some are authentic stablecoins, others are synthetic dollars, and some are tokenized securities. Let’s clarify their classifications:
True yield-bearing stablecoins
These are pegged to the US dollar, backed by reserves, and aim to deliver yield.
USDY (Ondo Finance): A tokenized note backed by short-term treasuries and bank deposits, available solely to non-US users after comprehensive KYC and Anti-Money Laundering (AML) checks. Transfers into or within the US are restricted. USDY functions as a rebasing instrument that mirrors Treasury yields.
sDAI (Sky): sDAI is a wrapper around DAI held in the Dai Savings Rate. Your balance increases at a variable rate decided by Maker governance. It’s widely integrated in DeFi but relies on smart contracts and protocol decisions — not insured deposits.
Synthetic stablecoins
These mimic stablecoins but utilize derivatives or other mechanisms rather than direct reserves.
sUSDe (Ethena): A “synthetic dollar” stabilized using long spot crypto plus short perpetual futures. Holders of sUSDe gain returns from funding rates and staking rewards. Returns can decrease rapidly, and risks encompass market fluctuations and exchange exposure.
Tokenized cash equivalents
These are not true stablecoins but are frequently utilized in DeFi as “onchain cash.”
Tokenized money market funds (e.g., BlackRock’s BUIDL): Not precisely a stablecoin, but rather tokenized shares in money market funds. They disburse dividends monthly as new tokens. Access is limited to qualified investors and institutions, making them attractive to DeFi protocols but generally inaccessible to retail users.
The 2025 stablecoin rulebook you should know
Regulation has become pivotal in determining whether you can possess specific yield-bearing stablecoins.
United States (GENIUS Act)
In 2025, the US enacted the GENIUS Act, its inaugural federal stablecoin legislation. A notable provision is the prohibition on issuers of payment stablecoins from directly paying interest or yield to holders.
This implies that tokens such as USDC or PayPal USD (PYUSD) cannot reward you simply for holding them.
The objective is to prevent stablecoins from competing with banks or becoming unregistered securities.
Consequently, US retail investors cannot legally earn passive yields from mainstream stablecoins. Most yield-bearing versions are structured as securities, accessible only to qualified investors or offered offshore to non-US users.
European Union (MiCA)
According to the Markets in Crypto-Assets (MiCA) framework, issuers of e-money tokens (EMTs) are also prohibited from paying interest. The EU strictly regards stablecoins as digital payment instruments, not savings vehicles.
United Kingdom (ongoing rules)
The UK is in the process of finalizing its own stablecoin regulations, focusing on issuance and custody. While not an explicit prohibition, the policy direction aligns with the US and EU: Stablecoins should facilitate payments, not yield.
The main takeaway: Always confirm your legal ability to buy and hold a yield-bearing stablecoin based on your location.
Tax considerations for yield-bearing stablecoins
Tax implications are just as crucial as selecting the right coin.
In the US, staking-type rewards, including rebases, are taxed as regular income upon receipt, regardless of whether they are sold later. If you eventually sell those tokens at a different value, that triggers capital gains tax. Moreover, 2025 has introduced new reporting mandates, requiring crypto exchanges to issue Form 1099-DA, and taxpayers must track cost basis per wallet, making meticulous record-keeping essential.
In the EU and internationally, fresh reporting guidelines (DAC8, CARF) will see crypto platforms automatically relay your transactions to tax authorities starting in 2026.
In the UK, HMRC guidance categorizes many DeFi returns as income, with token sales also subject to capital gains tax.
Risks to keep in mind if you are considering yield on your stablecoins
While yield-bearing stablecoins appear appealing, they are not devoid of risk:
Regulatory risk: Legislation can shift rapidly, potentially restricting access or discontinuing products.
Market risk: For synthetic models, yield is tied to volatile crypto markets, potentially vanishing overnight.
Operational risk: Smart contracts, custody arrangements, and governance decisions can all impact your holdings.
Liquidity risk: Certain stablecoins may limit redemptions to specific investors or enforce lock-ups.
Therefore, while pursuing yield on stablecoins can be lucrative, it does not equate to storing funds in a bank account. Each model — whether Treasury-backed, DeFi-centric, or synthetic — has its unique trade-offs.
Wise strategy involves sizing positions carefully, diversifying across issuers and strategies, and always monitoring regulations and redemption options. Treat stablecoin yields as investment products rather than risk-free savings.
This article does not offer investment advice or recommendations. Every investment and trading decision carries risk, and readers should perform their own research prior to making any decisions.
