Understanding Yield-Bearing Stablecoins for Passive Crypto Income in 2025

Yield-Bearing Stablecoins: A New Source of Passive Crypto Income in 2025

As investors continue to seek steady passive income streams, the crypto sector in 2025 introduces yield-bearing stablecoins as a noteworthy option. Unlike traditional stablecoins such as USDT or USDC, which maintain a 1:1 peg to the US dollar without providing returns, yield-bearing stablecoins are engineered to generate income through various mechanisms while preserving price stability.

Types of Yield-Bearing Stablecoins

Yield-bearing stablecoins generally fall into three main categories:

• Tokenized Treasuries and Money Market Funds: These stablecoins are backed by low-risk assets like short-term US Treasuries or bank deposits. The income generated from these assets is passed to holders either by increasing token balances or adjusting token value, effectively mirroring traditional cash-equivalent funds on the blockchain.
• Decentralized Finance (DeFi) Savings Wrappers: Protocols such as Sky (formerly MakerDAO) enable users to lock stablecoins like DAI into savings rate modules. Wrapped tokens like sDAI appreciate over time at rates governed by protocol governance, exposing holders to smart contract risks.
• Synthetic Yield Models: These stablecoins derive yield from derivatives strategies, including crypto market funding rates or staking rewards. While offering higher potential returns, these models are subject to market volatility and increased risk.

Access and Acquisition Constraints

Purchasing or minting yield-bearing stablecoins varies significantly depending on jurisdiction and product. Many issuers restrict minting privileges to institutional or qualified investors, limiting retail access. Regulatory frameworks, especially in the United States, restrict issuers from offering interest-bearing stablecoins to retail users. For example, Circle only allows approved institutional partners to mint USDC, requiring retail investors to purchase tokens on secondary markets.

Regulatory Environment Impacting Yield-Bearing Stablecoins

The introduction of the GENIUS Act in the US prohibits payment stablecoin issuers from directly paying interest or yield to holders, aiming to prevent stablecoins from competing with traditional banking products or being classified as unregistered securities. Similarly, the EU’s Markets in Crypto-Assets (MiCA) regulation forbids e-money token issuers from paying interest, treating stablecoins strictly as payment instruments. The UK is moving in a similar direction with its evolving stablecoin regulatory framework. These policies significantly restrict retail investors’ ability to earn passive income from mainstream stablecoins.

Tax Implications

Tax treatment of yield-bearing stablecoins is complex. In the US, rewards such as rebases are taxed as ordinary income when received, regardless of whether the tokens are sold, with subsequent disposals triggering capital gains tax. New reporting requirements, including Form 1099-DA, emphasize the need for meticulous record-keeping. The EU’s DAC8 and CARF frameworks will mandate automatic reporting of crypto transactions starting in 2026, while the UK’s HMRC treats many DeFi returns as income, subjecting disposals to capital gains tax.

Risks to Consider

Despite their appeal, yield-bearing stablecoins carry notable risks:

• Regulatory Risk: Rapid regulatory changes can restrict access or force product shutdowns.
• Market Risk: Synthetic stablecoins’ yields are sensitive to crypto market volatility and may diminish abruptly.
• Operational Risk: Smart contract vulnerabilities and governance decisions can impact returns and principal.
• Liquidity Risk: Certain stablecoins impose redemption restrictions or lock-up periods, limiting exit options.

Investors should approach yield-bearing stablecoins with caution, viewing them as investment products rather than risk-free savings vehicles. Diversification across issuers and strategies, coupled with vigilant monitoring of regulatory developments, is essential for managing exposure.

Examples of Yield-Bearing Stablecoins

• USDY (Ondo Finance): A tokenized note backed by US Treasuries and bank deposits, available primarily to non-US users after KYC and AML verification, featuring rebasing yield reflective of Treasury returns.
• sDAI (Sky): A DeFi wrapper around DAI that grows in balance based on MakerDAO governance-set savings rates, carrying smart contract and protocol risks.
• sUSDe (Ethena): A synthetic stablecoin stabilized via crypto spot and perpetual futures, offering yield from funding rates and staking but subject to market fluctuations.
• Tokenized Money Market Funds: Instruments like BlackRock’s BUIDL represent tokenized shares rather than stablecoins and are generally limited to qualified investors.

Yield-bearing stablecoins represent a nuanced intersection of traditional finance and decentralized technology, demanding thorough understanding of legal, tax, and operational frameworks before investment.

Disclaimer: This article does not constitute investment advice. All investments carry risk, and readers should conduct independent research before making financial decisions.