Stablecoins enter the

Written by: imToken

Have you recently seen a 12% annualized current yield for USDC on some platforms?

This is really not a gimmick. In the past, stablecoin holders were often "interest-free depositors", while issuers invested the deposited funds in safe assets such as U.S. Treasury bonds and bills to earn huge profits. USDT/Tether and USDC/Circle are no exceptions.

Now, the exclusive dividends that used to belong to issuers are being redistributed. In addition to the interest subsidy war for USDC, more and more new-generation yield-generating stablecoin projects are breaking down this "yield wall", allowing coin holders to directly share the interest income from 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-generating stablecoin?

By definition, a yield-generating stablecoin refers to a stablecoin whose underlying assets can generate returns, and the returns (usually from U.S. bonds, RWA, or on-chain yields) are directly distributed to holders. This is significantly different from traditional stablecoins (such as USDT/USDC), where the returns belong to the issuer. Holders only enjoy the advantage of being pegged to the U.S. dollar but do not receive interest income.

Yield-generating stablecoins, however, turn holding coins themselves into a passive investment tool. The reason is essentially that the Treasury bond interest income that Tether/USDT used to monopolize is distributed to the majority of stablecoin holders. An example may make this more intuitive:

For instance, the process of Tether issuing USDT is essentially a process where crypto users "purchase" USDT with U.S. dollars. When Tether issues 10 billion USDT, it means that crypto users have deposited 10 billion U.S. dollars with Tether to obtain this 10 billion USDT.

After receiving these 10 billion U.S. dollars, Tether does not need to pay interest to the corresponding users. It is equivalent to obtaining real U.S. dollar funds from crypto users at zero cost. If it buys U.S. Treasury bonds, that is zero-cost, risk-free interest income.

According to Tether's Q2 attestation report, it directly holds over $157 billion in U.S. government bonds (including $105.5 billion in direct holdings and $21.3 billion in indirect holdings), making it one of the largest holders of U.S. Treasury securities globally. Data from Messari shows that as of July 31, 2025, Tether has surpassed South Korea to become the 18th largest holder of U.S. Treasury bonds.

This means that even with a Treasury bond yield of around 4%, Tether can earn approximately $6 billion annually (about $1.75 billion per quarter). The data that Tether's operating profit in Q2 reached $4.9 billion also confirms the huge profitability of this model.

Based on the market practice that "stablecoins are no longer a tool that can be summarized by a unified narrative, and their use varies from person to person and from need to need", imToken has also divided stablecoins into multiple explorable subsets (for further reading: *The Worldview of Stablecoins: How to Build a User-Perspective Classification Framework for Stablecoins?*).

Among them, according to imToken's stablecoin classification method, yield-generating stablecoins are listed as a special subclass that can bring continuous returns to holders, mainly including two categories:

- **Native interest-bearing stablecoins**: Users can automatically obtain returns just by holding this type of stablecoin, similar to a current deposit in a bank. The token itself is an interest-bearing asset, such as USDe, USDS, etc.

- **Stablecoins with official yield mechanisms**: These stablecoins themselves do not necessarily generate interest automatically, but their issuers or management protocols provide official yield channels. Users need to perform specific operations, such as depositing them into designated savings protocols (like DAI's Deposit Savings Rate mechanism, DSR), staking them, or exchanging them for specific yield certificates, to start earning interest, such as DAI.

If 2020-2024 was the "expansion period of stablecoins", then 2025 will be the "dividend period of stablecoins". Under the balance of compliance, yield, and liquidity, yield-generating stablecoins may become the next trillion-dollar-level stablecoin sub-track.

II. Overview of Leading Yield-Generating Stablecoin Projects  

From the perspective of specific implementation paths, most yield-generating stablecoins are closely related to the tokenization of U.S. Treasury bonds. The on-chain tokens held by users are essentially anchored to U.S. Treasury assets held in custody by custodians. This not only retains the low-risk nature and income-generating capacity of Treasury bonds but also features the high liquidity of on-chain assets. They can also be combined with DeFi components to derive financial applications such as leverage and lending.  

In the current market, in addition to established protocols like MakerDAO and Frax Finance continuing to increase their efforts, new players such as Ethena (USDe) and Ondo Finance are also developing rapidly, forming a diversified landscape ranging from protocol-based to CeDeFi hybrid models.  

Ethena’s USDe  

As the traffic leader in this round of yield-generating stablecoin boom, Ethena’s stablecoin USDe naturally takes the spotlight, with its supply recently breaking the $10 billion mark for the first time.  

Data from Ethena Labs’ official website shows that as of the time of writing, the annualized yield of USDe remains as high as 9.31%, and it even stayed above 30% at one point. The high yield mainly comes from two sources:  

- LSD staking returns of ETH;  

- Funding rate income from delta hedging positions (i.e., short positions in perpetual futures);  

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

Ondo Finance USDY

As a star project in the RWA sector, Ondo Finance has been focusing on bringing traditional fixed-income products to 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, which is essentially a bearer debt instrument. That is, holders can directly hold it and enjoy returns without real-name verification.

USDY essentially provides on-chain funds with risk exposure close to that of Treasury bonds, while endowing the token with composability. It can be combined with DeFi lending, staking and other modules to achieve further amplification of returns. This design makes USDY an important representative of current on-chain money market fund-like products.

PayPal's PYUSD

When PayPal's PYUSD was launched in 2023, it was mainly positioned as a compliant payment-type stablecoin, with Paxos as the custodian, anchored 1:1 to U.S. dollar deposits and short-term Treasury bonds.

After entering 2025, PayPal began to try to add a profit distribution mechanism to PYUSD, especially in the cooperation mode with some custodian banks and Treasury investment accounts, returning part of the underlying interest income (from U.S. bonds and cash equivalents) to coin-holding users, trying to integrate the dual attributes of payment and income.

MakerDAO's EDSR/USDS

MakerDAO's dominance in the decentralized stablecoin sector is needless to say. Its launched USDS (the upgraded version of the original DAI Deposit Savings Rate mechanism) allows users to directly deposit tokens into the protocol and automatically obtain interest linked to U.S. bond yields without bearing additional operation costs.

At present, the Savings Rate (SSR) is 4.75%, and the deposit scale is close to 2 billion coins. Objectively speaking, behind the renaming incident is also MakerDAO's repositioning of its own brand and business form - evolving from a DeFi-native stablecoin to an RWA profit distribution platform.

Source: makerburn

Frax Finance's sFRAX

Frax Finance has always been the most active DeFi project to move closer to the Federal Reserve, including applying for a Federal Reserve master account (which allows holding U.S. dollars and directly trading with the Federal Reserve). Its launched staking vault sFRAX, which utilizes U.S. Treasury bond yields, purchases U.S. Treasury bonds through a brokerage account opened in cooperation with Lead Bank in Kansas City, and can track the Federal Reserve's interest rate to maintain relevance.

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

Source: Frax Finance

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

Generally speaking, the underlying configurations of most current yield-generating stablecoins are concentrated in short-term Treasury bonds and Treasury bond reverse repurchases, and the external interest rates are mostly in the range of 4%-5%, which is in line with the current U.S. bond yield level. With more CeFi institutions, compliant custodian platforms and DeFi protocols entering this track, this type of asset is expected to occupy an increasingly important share in the stablecoin market.

III. How to View the Yield Addition of Stablecoins?

As mentioned above, the core reason why yield-generating stablecoins can provide sustainable interest returns lies in the stable configuration of underlying assets. After all, the income sources of most such stablecoins are RWA assets such as U.S. Treasury bonds with extremely low risk and stable returns.

From the perspective of risk structure, the risk of holding U.S. bonds is almost the same as that of holding U.S. dollars, but U.S. bonds will generate additional annual interest of 4% or even higher. Therefore, in the high-interest rate cycle of U.S. bonds, these protocols obtain income by investing in these assets, then deduct operating costs, and distribute part of the interest to coin holders, forming a perfect closed loop of "U.S. bond interest - stablecoin promotion":

Holders only need to hold stablecoins as certificates to obtain the "interest income" of U.S. bonds as the underlying financial assets. At present, the yields of U.S. medium and short-term Treasury bonds are close to or exceed 4%, so the interest rates of most fixed-income projects supported by U.S. bonds are also mostly in the range of 4%-5%.

Objectively speaking, this "interest generation upon holding" model is naturally attractive. Ordinary users can let idle funds automatically generate interest; DeFi protocols can use them as high-quality collateral to further derive financial products such as lending, leverage, and perpetual contracts; institutional funds can enter the chain under a compliant and transparent framework, reducing operation and compliance costs.

Therefore, yield-generating stablecoins are expected to become one of the most understandable and implementable application forms in the RWA sector. Precisely because of this, RWA fixed-income products and stablecoins based on U.S. bonds are emerging rapidly in the current crypto market. The competitive landscape has initially taken shape, ranging from on-chain native protocols to payment giants and new players with Wall Street backgrounds.

No matter how U.S. bond interest rates change in the future, this wave of yield-generating stablecoins spawned by the high-interest rate cycle has made the value logic of stablecoins shift from "anchoring" to "dividends".

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

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