Stablecoins represent roughly $170 billion in market cap as of mid-2025 — yet most stablecoin holders earn nothing. Holding USDC or USDT in a wallet earns 0% while the issuer (Circle / Tether) earns 4–5%+ on Treasury bills using the backing assets. Yield-bearing stablecoins solve this problem by passing some or all of the underlying revenue through to holders. The category has grown from an experiment to a multi-billion dollar sector, with products ranging from near-risk-free tokenized T-bills to complex synthetic dollar strategies with multiple risk layers. Understanding the yield source and risk profile of each product is essential because “4% on USDC” and “4% on sUSDe” are categorically different propositions despite the same headline number.
Why Regular Stablecoins Don’t Yield
The following sections cover this in detail.
The Issuer Capture Problem
Standard USDC or USDT mechanics:
- User deposits $1 USD → receives 1 USDC
- Circle takes that $1 → invests in T-bills earning ~5% (2024 rates)
- Circle keeps the ~5% interest
- User earns 0%
Circle’s Q1 2024 revenue was ~$450M — almost entirely from T-bill interest on USDC reserves. This is the “issuer capture” model: users provide capital, issuers capture the yield.
Why this exists: ERC-20 tokens don’t naturally compound. USDC has a fixed 1:1 ratio — it can’t increase in supply to represent accrued interest without complex mechanisms.
The Regulatory Answer
Why can’t Circle simply pass yield to holders? Regulatory constraint:
- A USDC that automatically accrues interest may be classified as a security (like a money market fund) rather than a payment instrument
- Securities require SEC registration, investor accreditation verification, etc.
- Circle has chosen the non-yield path to maintain payment stablecoin status
Yield-bearing stablecoins take one of two approaches:
- Wrap the mechanism: Hold regular USDC in a separate ERC-4626 vault that earns yield — the wrapping contract is the security risk, not the base stablecoin
- Build yield into design: Ethena, Mountain Protocol, Ondo Finance build yield directly into the asset architecture
The ERC-4626 Standard: Yield Vault Infrastructure
Most yield-bearing stablecoins use the ERC-4626 tokenized vault standard (finalized 2022):
- Deposit base asset (e.g., DAI) → receive vault shares (e.g., sDAI)
- Vault shares increase in value as yield accrues
- Redeem shares → receive base asset + accumulated yield
- Standardized interface: any DeFi protocol can natively integrate ERC-4626 vaults
Key benefit: No rebasing complexity. Instead of balance changing, the exchange rate (1 share = X DAI) increases over time. This makes integration into DeFi composability easier compared to rebasing models like stETH.
Major Yield-Bearing Stablecoins
The following sections cover this in detail.
1. sDAI (Savings DAI) — MakerDAO/Sky
Yield source: Maker’s DAI Savings Rate (DSR) — set by MakerDAO governance
Current rate: Historically 5–8% during high-rate environment (dynamically adjustable by governance)
Mechanism: Deposit DAI → receive sDAI (ERC-4626); DSR paid from Maker protocol revenue (T-bill RWA income + borrowing fees)
Risk: Smart contract risk (Maker); governance risk (rate can be cut to 0); DAI depeg risk
Trust model: Decentralized governance (MKR token holders set DSR)
Where to use: DeFi Saver, Spark Protocol, any ERC-4626 integrator
Sky (MakerDAO rebrand): After the MakerDAO → Sky rebrand, sDAI may become sUSDS (savings USDS) — the underlying mechanism remains similar.
2. sUSDe (Staked USDe) — Ethena
Yield source: Ethereum staking revenue + funding rate arbitrage (short perpetual futures against long spot ETH)
Current rate: 15–30%+ during bull periods; can approach 0% or slightly negative in bear markets (when funding rates flip negative)
Mechanism: Deposit USDe → stake for sUSDe → yield accumulates as exchange rate increases
Risk:
- Smart contract risk (Ethena contracts)
- Custodian risk (ETH held with OES custodians: Copper, Ceffu, Komainu)
- Funding rate risk: If ETH perpetual funding goes persistently negative, yield turns negative and reserve fund is depleted
- Oracle risk
Historical performance: ~30% APY at ETH/BTC bull market peak; declining to ~5–10% in flat markets
Trust model: Centralized risk management by Ethena team; partial on-chain verification
3. USDY (US Dollar Yield) — Ondo Finance
Yield source: US Treasury bills and bank demand deposits
Current rate: ~5–5.4% (tracking 1-month T-bill rates)
Mechanism: T-bill yield passed directly to USDY holders daily; price increases over time (non-rebasing)
Regulatory position: Ondo structured USDY as a permissioned product with KYC/AML; US accredited investors excluded (a common off-shore structure)
Risk: Smart contract risk; Ondo counterparty risk; custody risk for underlying T-bills
Trust model: Ondo Finance as centralized issuer with third-party audited reserves (BlackRock, Morgan Stanley as T-bill custodians)
4. USDM — Mountain Protocol
Yield source: US Treasury bills (similar to USDY and BUIDL)
Mechanism: Rebasing stablecoin — balance increases daily to reflect T-bill yield; stays pegged to $1 while balance compounds
Regulatory position: Structured as a Bermuda-issued stablecoin; KYC required; not available to US persons
Risk: Mountain Protocol counterparty risk; T-bill custodian risk; smart contract risk
Differentiator: Rebasing model means the price stays at $1 (balance increases) — some DeFi protocols prefer non-rebasing for integration simplicity
5. USTB / BUIDL — Superstate / BlackRock
Superstate USTB: On-chain tokenized short-duration T-bill fund
BlackRock BUIDL: BlackRock’s tokenized money market fund (Ethereum); $500M+ TVL
Yield source: T-bills, Repos, cash equivalents
Risk: Near money-market-fund level; primary risk is tokenization layer smart contracts
Risk Spectrum Comparison
| Product | Yield Source | Approximate Yield | Primary Risk | Trust Model |
|---|---|---|---|---|
| sDAI | MakerDAO DSR (T-bills + fees) | 5–8% | Maker governance cut | Decentralized (DAO) |
| sUSDe | ETH staking + funding rates | 5–25% (variable) | Funding rate flip negative | Semi-centralized |
| USDY | US T-bills | ~5% | Ondo counterparty | Centralized |
| USDM | US T-bills | ~5% | Mountain counterparty | Centralized |
| BUIDL | T-bills/money market | ~5% | BlackRock (lowest) | Institutional |
| Curve 3pool | Trading fees + CRV emissions | 3–8% (variable) | Smart contract, IL minimal | Decentralized |
Risk ranking (highest to lowest trust):
- BlackRock BUIDL / Superstate USTB (institutional counterparties)
- USDY / USDM (regulated issuers with T-bill backing)
- sDAI (MakerDAO — decentralized but complex DAO governance)
- sUSDe (synthetic mechanism with funding rate exposure)
Tax and Regulatory Considerations
The regulatory landscape breaks down as follows.
US Tax Treatment
- Not capital gains — the accumulated yield is income when received
- Rebasing stablecoins (USDM) may trigger tax events daily as balance increases
- Non-rebasing vault shares (sDAI, USDY) may defer income recognition until redemption — consult a crypto tax specialist
Regulatory Risk
- Ondo/Mountain Protocol explicitly exclude US persons to avoid SEC jurisdiction
- Post-Coinbase lawsuit (2023), yield products on US exchanges face heightened scrutiny
- EU MiCA (2024) has specific rules for electronic money tokens vs. asset-referenced tokens
Related Terms
Sources
Moin, A., Sekniqi, K., & Sirer, E.G. (2020). SoK: A Classification Framework for Stablecoin Designs. Financial Cryptography and Data Security 2020.
Xu, T. et al. (2023). An Empirical Study of DeFi Liquidations: Incentives, Risks, and Instabilities. Proceedings of the ACM Internet Measurement Conference.
Qin, K., Zhou, L., Livshits, B., & Gervais, A. (2021). Attacking the DeFi Ecosystem with Flash Loans for Fun and Profit. Financial Cryptography 2021.
Aramonte, S., Wang, W., & Schrimpf, A. (2022). DeFi Risks and the Decentralisation Illusion. BIS Quarterly Review, December 2022.
Sockin, M., & Xiong, W. (2023). A Model of Cryptocurrencies. NBER Working Paper 26816.