Yield-Bearing Stablecoins: A Comprehensive Guide to Earning Passive Income in DeFi

Yield-bearing stablecoins offer the best of both worlds: the stability of traditional stablecoins with the added benefit of earning returns. If you’re looking to explore opportunities in decentralized finance (DeFi) or simply want to make your assets work for you, yield-bearing stablecoins could be a great option.

Yield-bearing stablecoins are a type of cryptocurrency that offer the best of both worlds: the stability of traditional stablecoins with the added benefit of earning returns. If you’re looking to explore opportunities in decentralized finance (DeFi) or simply want to make your assets work for you, yield-bearing stablecoins could be a great option. They maintain a stable value —usually pegged to the US dollar— while generating yield, making them an attractive choice for both crypto enthusiasts and traditional investors.

In this guide, we’ll break down everything you need to know about yield-bearing stablecoins, how they work, their differences from traditional stablecoins, and how you can make the most of them.

What Are Yield-Bearing Stablecoins?

Yield-bearing stablecoins are a specialized type of stablecoin that offer more than just price stability. Unlike traditional stablecoins, which merely hold value, yield-bearing stablecoins provide opportunities for passive income. By simply holding these stablecoins in your wallet, you can earn interest without any active management on your part.

These stablecoins are perfect if you’re looking to:

For example, holding USDY, one of the largest yield-bearing stablecoins, can provide you with regular interest payouts, which is a straightforward way to earn without needing to take extra steps.

Moreover, you can amplify your rewards by supplying these stablecoins to decentralized exchanges (DEXs) or lending protocols. In doing so, you can earn trading fees or interest payments, contributing to your overall earnings and the liquidity of the DeFi ecosystem.

We can summarize yield-bearing stablecoins as follows:

Yield-Bearing vs. Traditional Stablecoins

Both yield-bearing and traditional stablecoins aim to maintain a stable value, often pegged to the US dollar. However, they differ in functionality and benefits. Let’s break down the similarities and differences.

Similarities

In summary, yield-bearing stablecoins have the added complexity but reward you with returns, making them ideal if you’re looking for more than just stability.

How Do Yield-Bearing Stablecoins Generate Returns?

Yield-bearing stablecoins generate returns through various strategies, allowing you to profit from different sectors. Here’s a closer look at the three primary methods:

For instance, platforms like Ondo Finance and Mountain Protocol offer stablecoin holders access to returns generated by investing in real-world assets (RWAs) such as treasury bills or corporate bonds, effectively combining traditional finance with the crypto world.

Examples of Yield-Bearing Stablecoins

Below are some of the top yield-bearing stablecoins in the market, ranked by popularity and trading volume-

sDAI (Savings DAI)

sDAI is a yield-bearing version of the widely recognized decentralized stablecoin DAI, created by MakerDAO. This stablecoin allows you to earn interest by using the Dai Savings Rate (DSR) module. When you deposit your DAI into the DSR module, you receive sDAI in return, which represents your deposited amount.

What’s unique about sDAI is that it follows the ERC-4626 standard, meaning it’s a standardized yield-bearing vault that allows for smoother integration with various DeFi applications. As a holder of sDAI, you earn yield generated by the Maker protocol, with the returns distributed to DAI holders. This means that your investment continues to grow over time without requiring you to actively manage it.

Moreover, you’re not limited to simply holding sDAI in your wallet. It can be transferred, staked, lent out, or used across different DeFi applications while accumulating yield. If you wish to convert your sDAI back to DAI, you can do so seamlessly by withdrawing from the DSR module. This process doesn’t require you to use a decentralized exchange (DEX), making it a straightforward and flexible option for generating passive income.

USDe (Ethena Labs)

USDe, also referred to as sUSDe, is a relatively new addition to the yield-bearing stablecoin landscape, having gained significant traction since its launch in early 2024. What makes USDe particularly interesting is its “delta-neutral” trading strategy, which it uses to generate yield. This strategy allows USDe to maintain its stability while still providing returns to its holders, effectively minimizing the risk associated with market fluctuations.

USDe leverages various DeFi protocols and market-making activities to achieve these yields, making it a competitive option when compared to traditional financial products. By incorporating these strategies, USDe is designed to offer stable value alongside attractive returns, making it a compelling choice for investors looking for reliable yield generation without sacrificing stability.

Ondo Finance – USDY

USDY is an interest-generating “stablecoin.” Well, it’s not exactly a traditional stablecoin, it’s more a tokenized secured note, as per Ondo Finance’s documentation. It’s issued by the protocol using the ERC-20 standard on the Ethereum blockchain and secured by short.term US treasuries and bank