Yield-bearing stablecoins: how they work, types, advantages and risks

What are yield-bearing stablecoins?

In recent years, the cryptocurrency market has seen the emergence of yield-bearing stablecoins that not only maintain their peg to the US dollar and other currencies but also generate additional income for holders.

What are yield-bearing stablecoins?

Yield-bearing stablecoins are a type of stablecoin that provides holders with additional income while maintaining a peg to an underlying currency such as the US dollar, euro, or another fiat currency.

There are two main types of yield-bearing stablecoins: traditional, centralized models similar to Tether (USDT) and USDC (USDC), and decentralized and algorithmic models whose peg is maintained through built-in mechanisms and may not rely on reserve backing.

Yield-bearing stablecoins address one of the market's key problems — the loss of purchasing power caused by inflation affecting the fiat currencies to which stablecoins are pegged.

Yield-bearing stablecoins are becoming increasingly popular among investors. According to Pendle data as of March 2026, the yield-bearing stablecoin market exceeded $11.5 billion, accounting for more than 4% of the total stablecoin market capitalization. Over the last two years alone, the market has grown more than 7.5 times.

How do yield-bearing stablecoins work?

The mechanisms behind yield-bearing stablecoins are usually based on investment strategies. Several common models are used:

Traditional finance (TradFi) instruments. In this model, issuers distribute income generated from Treasury bonds, bank deposits, and other traditional financial products to stablecoin holders.
RWA (Real-World Asset) model. In this approach, issuers also use traditional financial instruments, but in tokenized form on the blockchain.
DeFi lending. Protocols accept deposits from investors, generate income by issuing loans, and use that revenue to pay interest to holders of yield-bearing stablecoins.

At the same time, issuers may use other strategies, such as earning profits from liquidity pools on decentralized exchanges or from staking cryptocurrencies.

There is also another type of yield-bearing stablecoin that increases portfolio value not through interest payments but through appreciation of the underlying asset. If the market price of the underlying asset rises, the value of the stablecoin backed by it also increases. In this case, returns are generated not as fixed interest credited to the balance, but as the difference between the purchase price and the later sale or valuation price of the stablecoin. This mechanism is closer to an investment model: the holder profits from the appreciation of the asset while simultaneously bearing the risk of a price decline.

In addition to the strategies already mentioned, yield-bearing stablecoins with appreciating prices may also support a rebase mechanism.

A rebase is an automatic adjustment of the asset supply: the protocol may increase or decrease the number of tokens in circulation depending on the market price of the asset and the target value. If the price of the stablecoin needs to be brought to a certain level, the system changes not the backing mechanism itself, but the number of coins held by users or circulating in the market. For example, during a positive rebase, user balances may increase, while during a negative rebase, they may decrease. Through this mechanism, the protocol attempts to maintain the desired price dynamics and redistribute accumulated yield among stablecoin holders.

Advantages and risks of yield-bearing stablecoins

The main advantage of yield-bearing stablecoins is that they serve not only as a store of value but also as an investment instrument.

This is especially important for beginners, since yield-bearing stablecoins can provide easy access to the crypto market and passive income without requiring deep investment expertise.

However, the risks associated with yield-bearing stablecoins should also be considered. One of the primary risks is the possibility of losing the peg to the underlying currency, such as the US dollar. This means that a stablecoin intended to trade around $1 may trade above or below that level.

This may occur due to insufficient reserves, a sharp decline in the value of reserve assets, liquidity issues, failures in the peg-maintenance algorithm, or mass user withdrawals. In such a situation, holders can no longer be certain they will be able to redeem the stablecoin at its stated value. The more complex the yield-generation mechanism, the higher the likelihood that the stablecoin may temporarily or permanently lose its peg during periods of market stress.

In addition, reserves of some yield-bearing stablecoins may include not only fiat currencies but also volatile crypto assets such as Bitcoin (BTC), Ethereum (ETH), and others. In this case, a decline in cryptocurrency prices may reduce the total value of reserves backing the stablecoin.

If the decline becomes significant, reserves may no longer be sufficient to redeem all issued stablecoins at the stated value. In other words, the issuer or protocol may face a situation where obligations to holders exceed the real value of the backing assets. As a result, users may receive less of the underlying currency than expected upon redemption.

In addition to insufficient reserves, another risk is low liquidity. Liquidity reflects how easily and quickly an asset can be bought or sold without significantly affecting its price. If there are few buyers and sellers and trading volumes are low, even relatively large transactions can sharply move the stablecoin's price up or down. As a result, the coin becomes more volatile and may temporarily trade at a price that deviates from the value of the underlying currency. For example, a stablecoin intended to remain close to $1 may trade below that level if many holders attempt to exit simultaneously. The lower the liquidity, the more difficult it becomes to maintain price stability, and the higher the risk of losing the peg.

The possibility of protocol hacks should also not be ignored, as attackers may steal yield-bearing stablecoins from vulnerable systems.

Examples of yield-bearing stablecoins

1. Ethena USDe (USDe)

USDe is one of the largest yield-bearing stablecoins. The Ethena team launched the first algorithmic yield-bearing stablecoin based on a delta-neutral hedging strategy in the derivatives market.

Returns paid to USDe holders are generated through two mechanisms:

Staking ETH, through which the Ethena protocol receives newly issued Ethereum coins;
Short positions in perpetual futures contracts that generate income through positive funding rates.

According to CoinMarketCap data as of May 2026, Ethena USDe's market capitalization is nearly $4 billion, placing it among the five largest stablecoins. USDe alone accounts for more than 30% of the entire yield-bearing stablecoin market capitalization.

2. sUSD (SUSD)

With a market capitalization of nearly $6 billion, sUSD is the new version of the yield-bearing stablecoin sDAI from Sky Protocol, previously known as MakerDAO.

SUSD allows holders to earn interest through the Dai Savings Rate (DSR), a mechanism that accumulates yield within the protocol ecosystem. DSR is a special savings rate that automatically rewards users who hold or lock their stablecoins in the system. Interest payments are generated from protocol revenues such as fees and loan repayments.

The DSR rate is not fixed; it is determined by the decentralized autonomous organization (DAO) governing Sky Protocol through voting. If participants believe it is necessary to increase the attractiveness of holding the stablecoin, the rate can be raised, while changing market conditions may lead to reductions.

3. Ondo US Dollar Yield (USDY)

A yield-bearing stablecoin USDY launched by the well-known decentralized platform Ondo Finance back in 2023. Since the beginning of 2025 alone, USDY's market capitalization has grown more than fourfold and, as of May 2026, has reached nearly $2 billion.

Ondo became the first protocol to issue a yield-bearing stablecoin whose yield is generated not through interest payments but through appreciation of the asset price.

4. Usual USD (USD0)

USD0 is one of the few yield-bearing stablecoins fully backed by tokenized real-world assets.

Investors can mint USD0 by depositing an equivalent amount of real-world assets into the protocol reserve. However, unlike many other yield-bearing stablecoins, USD0 has shown negative dynamics: since the beginning of 2025, its market capitalization has fallen by more than three times to $564 million.

5. Binance Futures USD (BFUSD)

BFUSD was introduced in 2024 as a high-yield margin token issued by Binance. However, the company later changed the original model, and BFUSD is now considered one of the largest yield-bearing stablecoins. As of May 2026, BFUSD's market capitalization exceeds $1.3 billion.

Unlike traditional and yield-bearing stablecoins, BFUSD does not require deposits or staking. To earn yield, holders only need to keep BFUSD in their Binance exchange wallet.

Conclusion

Although yield-bearing stablecoins provide additional returns to holders, traditional fiat-backed stablecoins can also generate income, for example, through deposits and lending products.

In some periods, classic stablecoins may even outperform yield-bearing stablecoins in terms of interest rates. For example, during bull markets, it is not uncommon to encounter stablecoins offering yields of up to 15% or even 30% annually. However, the higher the yield, the more carefully investors should evaluate the source of that yield and the sustainability of the chosen instrument.