Key takeaways
Yield-generating stablecoins encompass treasury-backed, DeFi, and synthetic models.
Legal frameworks in the US and EU prohibit issuers from offering interest; access is frequently limited.
Rebases and rewards are classified as taxable income upon receipt.
There are ongoing risks: regulation, markets, contracts, and liquidity.
The quest for passive income has long prompted investors to consider assets like dividend-paying stocks, real estate, or government bonds.
By 2025, the crypto landscape introduces yield-generating stablecoins. These digital assets are crafted not only to maintain their dollar value but also to provide a steady income while held in a wallet.
Before diving in, it’s essential to grasp what these stablecoins entail, how the yield is generated, and the applicable legal and tax implications.
Let’s break it down systematically.
What are yield-bearing stablecoins?
Conventional stablecoins such as Tether’s USDt (USDT) or USDC (USDC) are pegged to the dollar without offering any rewards for holding them. Yield-bearing stablecoins differ: they automatically relay returns from associated assets or strategies to their holders.
Currently, there are three primary models in circulation:
Tokenized treasuries and money market funds: These stablecoins are secured by low-risk assets like short-term US Treasurys or bank deposits. The returns from these assets are redistributed to tokenholders, usually by increasing their token balance or altering its value. Essentially, they can be viewed as blockchain-enhanced versions of traditional cash-equivalent funds.
Decentralized finance (DeFi) savings wrappers: Protocols like Sky (formerly MakerDAO) enable users to deposit stablecoins, such as Dai (DAI), into a “savings rate” module. When converted to tokens such as sDAI, your balance increases over time at a rate determined by the protocol’s governance.
Synthetic yield models: Some cutting-edge stablecoins, driven by derivatives strategies, derive yield from crypto market funding rates or staking rewards. These returns may be higher but are also subject to market fluctuations.
Can you earn passive income with yield-bearing stablecoins?
The short answer is yes, though specifics can differ by product. Here’s a typical path:
1. Select your stablecoin type
If you prefer lower risk with traditional backing, consider tokenized treasury-backed coins or money-market fund tokens.
If you’re comfortable taking on DeFi risk, you might explore sDAI or similarly structured savings wrappers.
For potentially higher yields (and greater volatility), synthetic stablecoins like sUSDe may be appropriate.
2. Acquire or mint the stablecoin
Most of these tokens can be obtained either from centralized exchanges — which have Know Your Customer (KYC) protocols — or directly via a protocol’s site.
However, some issuers limit access by geography. For instance, many US retail investors are unable to purchase tokenized treasury coins due to securities regulations (as they are classified as securities, limited to qualified or international investors).
Furthermore, minting stablecoins is often restricted. To mint, you need to deposit dollars with the issuer, who then creates new stablecoins. This option is not universally available; many issuers confine minting to banks, payment firms, or qualified investors.
For example, Circle (issuer of USDC) allows only approved institutional partners to mint directly. Retail buyers cannot send dollars to Circle; they have to purchase USDC that is already in circulation.
3. Hold or stake in your wallet
After acquisition, simply retaining these stablecoins in your wallet may suffice to earn yield. Some implement rebasing (your balance grows daily), while others utilize wrapped tokens that appreciate over time.
4. Engage in DeFi for additional earnings
In addition to inherent yield, some holders deploy these tokens in lending protocols, liquidity pools, or structured vaults to create extra income streams. This carries added complexity and risk, so proceed with caution.
5. Monitor and document your income
Even though the tokens grow automatically, tax regulations in many jurisdictions classify those increases as taxable income upon crediting. Maintain accurate records of when and how much yield you have received.
Did you know? Some yield-bearing stablecoins distribute returns through token appreciation rather than additional tokens, meaning your balance remains unchanged, but each token can eventually be redeemed for more underlying assets. This subtlety can impact how taxes are assessed in various regions.
Examples of yield-bearing stablecoins
Not every product that resembles a yield-bearing stablecoin actually qualifies. Some are genuine stablecoins, others are synthetic dollars, and some are tokenized securities. Let’s clarify how they are categorized:
True yield-bearing stablecoins
These are pegged to the US dollar, backed by reserves, and crafted to deliver yield.
USDY (Ondo Finance): It is a tokenized note supported by short-term treasuries and bank deposits, available only to non-US users who complete full KYC and Anti-Money Laundering (AML) verifications. Transfers into or within the US are prohibited. USDY operates like a rebasing instrument reflecting Treasury yields.
sDAI (Sky): sDAI is a wrapper around DAI deposited in the Dai Savings Rate. Your balance appreciates at a variable rate determined by Maker governance. It’s widely integrated into DeFi but hinges on smart contracts and protocol decisions — rather than guaranteed deposits.
Synthetic stablecoins
These emulate stablecoins but utilize derivatives or alternative mechanisms instead of direct reserves.
sUSDe (Ethena): A “synthetic dollar” stabilized by long spot crypto along with short perpetual futures. Holders of sUSDe generate returns from funding rates and staking rewards. These returns can diminish rapidly, and market volatility and exchange exposure present risks.
Tokenized cash equivalents
These are not true stablecoins but are frequently used in DeFi as “onchain cash.”
Tokenized money market funds (e.g., BlackRock’s BUIDL): Not strictly a stablecoin, but tokenized shares in money market funds. They distribute monthly dividends via new tokens. Access is restricted to qualified investors and institutions, making them favored by DeFi protocols yet generally inaccessible for retail investors.
The 2025 stablecoin rulebook you should know
Regulatory dynamics play a crucial role in determining whether you can hold specific yield-bearing stablecoins.
United States (GENIUS Act)
In 2025, the US enacted the GENIUS Act, marking its inaugural federal stablecoin regulation. A pivotal provision restricts issuers of payment stablecoins from offering interest or yield directly to holders.
This means tokens like USDC or PayPal USD (PYUSD) cannot reward you merely for holding them.
The intent is to prevent stablecoins from rivaling banks or becoming unregistered securities.
Consequently, US retail investors are legally barred from receiving passive yield from mainstream stablecoins. Yield-bearing variants are usually structured as securities, accessible only to qualified investors or offered offshore to non-US users.
European Union (MiCA)
Under the Markets in Crypto-Assets (MiCA) framework, issuers of e-money tokens (EMTs) are also prohibited from distributing interest. The EU characterizes stablecoins strictly as digital payment instruments, not savings assets.
United Kingdom (ongoing rules)
The UK is finalizing its own stablecoin regulations, emphasizing issuance and custody. While not yet an explicit prohibition, the policy trajectory aligns with that of the US and EU: Stablecoins should facilitate payments, not yield.
The clear takeaway: Always verify if you’re legally permitted to purchase and maintain a yield-bearing stablecoin in your region.
Tax considerations for yield-bearing stablecoins
Tax implications are as crucial as selecting the appropriate coin.
In the US, rewards akin to staking, including rebases, are taxed as ordinary income upon receipt, regardless of whether sold. If you later dispose of these tokens at a different value, that triggers capital gains tax. Additionally, 2025 saw the introduction of new reporting regulations mandating crypto exchanges to issue Form 1099-DA, and taxpayers must track cost basis per wallet, making diligent record-keeping ever more vital.
In the EU and globally, fresh reporting mandates (DAC8, CARF) mean that cryptocurrency platforms will automatically notify tax authorities of your transactions starting in 2026.
In the UK, HMRC guidelines categorize many DeFi rewards as income, with any token disposals subject to capital gains tax.
Risks to consider if you are contemplating yield on your stablecoins
Although yield-bearing stablecoins appear appealing, they are not without risks:
Regulatory risk: Regulations can shift swiftly, potentially disrupting access or terminating products.
Market risk: For synthetic models, yield relies on volatile crypto markets and may vanish quickly.
Operational risk: Smart contracts, custody arrangements, and governance choices can impact your holdings.
Liquidity risk: Certain stablecoins limit redemptions to specific investors or enforce lock-up periods.
Thus, while pursuing yield on stablecoins can be lucrative, it’s not equivalent to parking funds in a bank account. Each model—whether Treasury-backed, DeFi-native, or synthetic—comes with its respective trade-offs.
The wisest strategy is to allocate cautiously, diversify among issuers and strategies, and remain vigilant regarding regulations and redemptions. Approach stablecoin yields as an investment product, not as risk-free savings.
This article does not comprise investment advice or recommendations. Every investment and trading action carries risk, and readers are encouraged to conduct their own due diligence before making a decision.
