Stablecoins Enter the "Yield Era": A Comprehensive Interpretation of Income-Generating Stablecoins

Have you seen the 12% annualized yield on USDC on certain platforms lately?

This is really not a gimmick. In the past, stablecoin holders were often zero-interest "non-interest depositors," while the issuers invested the deposited funds in safe assets such as U.S. Treasuries and notes, earning huge profits. Isn't USDT/Tether and USDC/Circle just like that?

And now, the exclusive dividends that used to belong to the issuers are being redistributed—in addition to the interest subsidy battle of USDC, more and more new generation yield-bearing stablecoin projects are breaking down this "yield wall," allowing token holders to directly share in the interest income of the underlying assets. This not only changes the value logic of stablecoins but may also become a new growth engine for the RWA and Web3 tracks.

1. What is a yield-bearing stablecoin?

From a definition standpoint, yield-bearing stablecoins refer to stablecoins whose underlying assets can generate income and directly distribute that income (usually from US Treasuries, RWA, or on-chain yields) to token holders. This is distinctly different from traditional stablecoins (such as USDT/USDC), as their yields belong to the issuer, and holders only enjoy the advantage of being pegged to the USD without any interest income.

However, yield-generating stablecoins turn holding the coins themselves into a passive investment tool. The reason for this is that they share the treasury bond interest earnings, which were previously monopolized by Tether/USDT, with a broader base of stablecoin holders. An example might help to understand this more intuitively:

For example, the process by which Tether issues USDT is essentially the process of crypto users "purchasing" USDT with US dollars—when Tether issues 10 billion USDT, it means that crypto users have deposited 10 billion US dollars with Tether to obtain these 10 billion USDT.

After Tether received this 10 billion USD, it does not need to pay interest to the corresponding users, which is equivalent to obtaining real USD funds from cryptocurrency users at zero cost; if it buys US Treasury bonds, that would be zero cost and risk-free interest income.

Source: Messari

According to Tether's disclosed second-quarter verification report, it directly holds over 157 billion USD in U.S. government bonds (including 105.5 billion USD in direct holdings and 21.3 billion USD in indirect holdings), making it one of the largest holders of U.S. Treasury bonds globally. According to Messari data, as of July 31, 2025, Tether surpasses South Korea to become the 18th largest holder of U.S. Treasury bonds.

This means that even with a government bond yield of around 4%, Tether can earn about $6 billion a year (approximately $700 million per quarter). The data showing Tether's operating profit of $4.9 billion in the second quarter also confirms the high profits of this model.

imToken, based on the market practice that "stablecoins can no longer be summarized as a unified narrative; their use varies from person to person and depends on needs," has also categorized stablecoins into multiple exploratory subsets.

According to imToken's classification method for stablecoins, yield-bearing stablecoins are categorized as a special subclass that can provide continuous income to holders, primarily including two major categories:

• Native Interest-Generating Stablecoins: Users only need to hold this type of stablecoin to automatically earn income, similar to a bank's demand deposits. The token itself is an interest-generating asset, similar to USDe, USDS, etc.;
• Stablecoins with official yield mechanisms: These stablecoins may not automatically accrue interest by themselves, but their issuers or management protocols provide official yield channels. Users need to perform specific actions, such as depositing them into designated savings protocols (like DAI's deposit rate mechanism DSR), staking, or exchanging them for specific yield certificates, to start earning interest, similar to DAI, etc.;

If the years 2020-2024 are the "expansion period for stablecoins," then 2025 will be the "dividend period for stablecoins." Under the balance of compliance, yield, and liquidity, yield-bearing stablecoins may become the next trillion-dollar sub-sector of stablecoins.

Source: Yield-bearing stablecoin from imToken Web (web.token.im)

2. Review of Leading Yield-Generating Stablecoin Projects

From the perspective of specific implementation paths, most yield-bearing stablecoins are closely related to the tokenization of US Treasury bonds—on-chain tokens held by users are essentially anchored to the US Treasury assets held by custodians, which preserves the low-risk attributes and yield capabilities of Treasury bonds, while also providing high liquidity of on-chain assets, and can be combined with DeFi components to derive financial activities such as leverage and lending.

In the current market, in addition to established protocols like MakerDAO and Frax Finance continuing to ramp up, the development of new players such as Ethena (USDe) and Ondo Finance is also accelerating rapidly, forming a diverse landscape ranging from protocol-based to hybrid CeDeFi.

Ethena's USDe

As the traffic leader in this round of yield-bearing stablecoin craze, the first one is naturally the stablecoin USDe under Ethena, which recently saw its supply surpass the 10 billion mark for the first time.

According to the official website of Ethena Labs, as of the time of writing, the annualized yield of USDe remains as high as 9.31%, previously even maintaining above 30% for a time, with the high yield mainly coming from two sources:

• ETH's LSD staking yield;
• Delta hedge position (i.e., short position in perpetual futures) funding fee income;

The former is relatively stable, currently fluctuating around 4%, while the latter completely depends on market sentiment. Therefore, the annualized yield of USDe is to some extent directly related to the funding rate across the network (market sentiment).

Source: Ethena

Ondo Finance USDY

Ondo Finance, as a star project in the RWA track, has been focused on bringing traditional fixed income products into the on-chain market. Its launched USD Yield (USDY) is a tokenized note backed by short-term U.S. Treasury bonds and bank demand deposits, essentially belonging to a bearer bond, meaning that holders can directly own and enjoy the benefits without the need for real-name verification.

USDY essentially provides on-chain funds with a risk exposure close to that of government bonds, while granting token composability, allowing it to be integrated with DeFi lending, staking, and other modules to amplify yields. This design makes USDY an important representative of the current on-chain quasi-money market funds.

PayPal's PYUSD

PayPal's PYUSD was launched in 2023, primarily positioned as a compliant payment stablecoin, with Paxos as the custodian, pegged 1:1 to USD deposits and short-term government bonds.

After entering 2025, PayPal began to attempt to overlay a yield distribution mechanism on PYUSD, especially in the cooperative models with certain custodial banks and government bond investment accounts, returning some of the underlying interest income (from U.S. Treasuries and cash equivalents) to token holders, trying to bridge the dual attributes of payment and yield.

MakerDAO's EDSR/USDS

The dominance of MakerDAO in the decentralized stablecoin space goes without saying. Its launched USDS (an upgraded version of the DAI deposit interest rate mechanism) allows users to directly deposit tokens into the protocol and automatically earn interest tied to US Treasury yields, without incurring additional operational costs.

The current savings interest rate (SSR) is 4.75%, with a deposit scale close to 2 billion coins. Objectively speaking, the renaming event also reflects MakerDAO's repositioning of its brand and business model—from a DeFi native stablecoin to an RWA yield distribution platform.

Source: makerburn

sFRAX of Frax Finance

Frax Finance has always been one of the most proactive DeFi projects in aligning with the Federal Reserve, including applying for a main account with the Federal Reserve (which allows holding USD and trading directly with the Federal Reserve). Its launched collateral vault sFRAX, which utilizes U.S. Treasury yields, can track Federal Reserve interest rates to maintain relevance by opening a brokerage account to purchase U.S. Treasuries in collaboration with Lead Bank in Kansas City.

As of the time of writing, the total amount of sFRAX staked has exceeded 60 million coins, and the current annualized interest rate is approximately 4.8%.

Source: Frax Finance

In addition, it is worth noting that not all yield-bearing stablecoins can operate stably; for example, the USDM project has announced liquidation, the minting function has been permanently disabled, and only a limited time for primary market redemption is retained.

Overall, the underlying configuration of most yield-bearing stablecoins is concentrated in short-term government bonds and reverse repos of government bonds, with the interest rates offered generally in the range of 4%-5%, aligning with the current yield levels of US Treasuries. As more CeFi institutions, compliant custodial platforms, and DeFi protocols enter this space, these types of assets are expected to occupy an increasingly important share in the stablecoin market in the future.

3. How to view the yield enhancement of stablecoins?

As mentioned above, the reason why yield-generating stablecoins can provide sustainable interest returns lies in the robust allocation of underlying assets. After all, the vast majority of the yields from such stablecoins come from RWA assets like U.S. Treasury bonds, which have extremely low risk and stable returns.

From the perspective of risk structure, holding US Treasuries and holding USD carry almost the same risk, but US Treasuries generate an additional annualized interest of 4% or even higher. Therefore, during periods of high interest rates for US Treasuries, these protocols obtain returns by investing in these assets, and after deducting operating costs, they distribute part of the interest to token holders, forming a perfect "US Treasury Interest - Stablecoin Promotion" closed loop:

Holders only need to hold stablecoins as proof to receive "interest income" from US Treasury bonds as underlying financial assets, and currently, the yields on US short- and medium-term Treasury bonds are close to or exceed 4%, so the interest rates of most fixed-income projects backed by US Treasury bonds are also mostly in the range of 4%-5%.

Objectively speaking, this "holding generates interest" model is inherently attractive, as ordinary users can allow idle funds to automatically generate interest. DeFi protocols can also use this as high-quality collateral, further deriving financial products such as lending, leverage, and perpetual contracts. Institutional funds can enter the blockchain under compliant and transparent frameworks, reducing operational and compliance costs.

Therefore, yield-bearing stablecoins are expected to become one of the most easily understood and implemented application forms in the RWA track. For this reason, current RWA fixed income products based on US Treasuries and stablecoins are rapidly emerging in the crypto market, from on-chain native protocols to payment giants and to the new elites with Wall Street backgrounds, the competitive landscape is beginning to take shape.

Regardless of how U.S. Treasury interest rates change in the future, this wave of yield-generating stablecoins driven by a high interest rate cycle has already shifted the value logic of stablecoins from "anchoring" to "dividends."

In the future, perhaps when we look back at this point in time, we will find that it is not only a watershed moment for the narrative of stablecoins, but also another historical turning point in the integration of cryptocurrency and traditional finance.