Yield-Bearing Stablecoins: A Beginner’s Guide to Earning Interest with Crypto

Stablecoins have become a cornerstone of the cryptocurrency world, offering price stability by pegging their value to assets like the U.S. dollar. But a new type of stablecoin, called yield-bearing stablecoins, is gaining popularity for its ability to generate passive income for holders. If you’re new to crypto and curious about yield-bearing stablecoins, this guide will break down what they are, how they work, their benefits and risks, and key considerations for beginners.

What Are Yield-Bearing Stablecoins?

Yield-bearing stablecoins are digital currencies designed to maintain a stable value (typically pegged 1:1 to the U.S. dollar) while offering holders the chance to earn interest, or “yield,” on their holdings. Unlike traditional stablecoins like Tether (USDT) or USD Coin (USDC), which focus solely on price stability, yield-bearing stablecoins distribute profits from underlying investments, such as lending or tokenized U.S. Treasuries, to their holders.

As of May 2025, yield-bearing stablecoins have grown to a market value of $11 billion, representing about 4.5% of the $243 billion stablecoin market, according to Cointelegraph. This rapid growth highlights their appeal as a way to combine the stability of traditional stablecoins with the earning potential of decentralized finance (DeFi).

How Do Yield-Bearing Stablecoins Work?

Yield-bearing stablecoins generate returns through various mechanisms, depending on the issuer. Here’s a simplified overview:

• Underlying Investments: Issuers invest the assets backing the stablecoin (e.g., cash or equivalents) in income-generating opportunities, such as:

• Lending in DeFi protocols, where borrowed funds earn interest.

• Tokenized U.S. Treasury bills or money market funds, which provide steady returns.

• Staking or liquidity provision in blockchain networks.

• Profit Distribution: The interest or profits earned from these investments are shared with stablecoin holders, either automatically or through a claim process, depending on the platform.

• Stability Mechanism: Like other stablecoins, yield-bearing stablecoins maintain their peg (e.g., $1 per token) through reserves of liquid assets, such as fiat currency or government securities.

For example, Spark Protocol’s sDAI earns yield through MakerDAO’s lending system, while Figure Markets’ YLDS, registered with the U.S. Securities and Exchange Commission (SEC), offers a yield of approximately 3.85% based on investments in prime money market funds, as noted by Ledger Insights.

Key Players in Yield-Bearing Stablecoins

Some prominent issuers include:

• Spark Protocol: Part of MakerDAO, it offers sDAI and USDS, which generate yield through decentralized lending and tokenized Treasuries. The yield varies based on the Dai Savings Rate (DSR).

• Figure Markets: Its YLDS stablecoin is SEC-registered and provides a fixed yield tied to the Secured Overnight Financing Rate (SOFR) minus 0.5%.

• Pendle: A DeFi protocol capturing 30% of the yield-bearing stablecoin market, enabling tokenized yield strategies, per Bloomberg.

These platforms are challenging dominant stablecoins like Tether and Circle by offering an attractive blend of stability and passive income.

Benefits of Yield-Bearing Stablecoins

For beginners, yield-bearing stablecoins offer several advantages:

• Passive Income: Earn interest without the volatility of cryptocurrencies like Bitcoin or Ethereum. Yields can range from 2% to 5% or higher, depending on the platform and market conditions.

• Stability: Pegged to stable assets like the U.S. dollar, these coins avoid the price swings common in crypto.

• Accessibility: Many platforms allow easy entry through crypto wallets or exchanges, with some, like Figure Markets, offering regulated options for traditional investors.

• DeFi Exposure: Gain access to decentralized finance opportunities without needing advanced technical knowledge.

Risks to Understand

While appealing, yield-bearing stablecoins come with risks that beginners should consider:

• Regulatory Uncertainty: In the U.S., the GENIUS Act, a bill advancing in the Senate as of May 2025, could ban yield-bearing stablecoins by prohibiting issuers from offering interest, according to Galaxy Digital. This could disrupt their growth and availability.

• Smart Contract Risks: Many yield-bearing stablecoins operate on DeFi protocols, which rely on smart contracts. Bugs or hacks in these contracts could lead to losses.

• Counterparty Risk: The stability of the stablecoin depends on the issuer’s reserves and management. If reserves are mismanaged, the peg could break.

• Market Risk: Yields are not guaranteed and can fluctuate based on market conditions, such as interest rates or lending demand.

• Complexity: Some platforms require understanding DeFi concepts, like liquidity pools or staking, which can be daunting for beginners.

What Beginners Should Know Before Investing

If you’re considering yield-bearing stablecoins, here are key steps and considerations:

• Research the Issuer: Look into the platform’s reputation, reserve management, and regulatory compliance. For example, Figure Markets’ SEC registration offers a layer of oversight, while Spark Protocol operates in the decentralized MakerDAO ecosystem.

• Understand the Yield Source: Check how the yield is generated (e.g., lending, Treasuries) and whether it’s sustainable. Variable yields, like those from Spark Protocol, may change with market conditions.

• Stay Informed on Regulations: The GENIUS Act or similar laws could impact your investment. Monitor news from reliable sources like Chainalysis or Bloomberg for updates on U.S. and global regulations.

• Start Small: Begin with a small investment to test the waters. Use trusted crypto exchanges or wallets that support yield-bearing stablecoins, such as MetaMask or Coinbase Wallet.

• Assess Fees and Accessibility: Some platforms charge fees for entering or exiting positions, and yields may be reduced by transaction costs. Ensure the platform aligns with your financial goals.

• Diversify: Don’t put all your funds into one stablecoin. Consider diversifying across traditional and yield-bearing stablecoins to balance risk and reward.

How to Get Started

• Set Up a Crypto Wallet: Download a wallet like MetaMask or use an exchange like Coinbase that supports stablecoins.

• Buy a Yield-Bearing Stablecoin: Purchase tokens like sDAI or YLDS through supported platforms or decentralized exchanges (e.g., Uniswap for sDAI).

• Hold or Stake: Some stablecoins automatically accrue yield when held in a wallet, while others require staking or depositing into a protocol to earn interest.

• Monitor Your Investment: Track yield performance and stay updated on regulatory changes that could affect your holdings.

The Future of Yield-Bearing Stablecoins

The rise of yield-bearing stablecoins reflects growing demand for crypto products that combine stability with income. However, their future hinges on regulatory developments. The GENIUS Act, if passed, could limit their growth in the U.S., potentially pushing innovation to jurisdictions with friendlier regulations, like Hong Kong or Singapore, which recently passed stablecoin-friendly laws (Cointelegraph). Despite these challenges, industry leaders like Polygon Labs’ CEO predict stablecoins will drive significant crypto activity in 2025, per Blockworks.

Conclusion

Yield-bearing stablecoins offer an exciting opportunity for beginners to earn passive income in crypto while maintaining price stability. However, they come with unique risks, especially around regulation and smart contract vulnerabilities. By researching issuers, starting small, and staying informed, you can explore this growing sector with confidence. 

To the future of stable yields,
The StableHodl Team