The search for passive income has always drawn investors toward assets like dividend stocks, real estate, or government bonds. In 2025, the crypto industry adds a new contender to this list: yield bearing stablecoins.
Unlike traditional stablecoins that simply hold value against the dollar, yield-bearing stablecoins are designed to generate steady income while sitting in your wallet. But before diving in, it’s important to understand what they are, how they work, and the risks involved.

What Are Yield Bearing Stablecoins?

Traditional stablecoins such as Tether (USDT) or USD Coin (USDC) are pegged to the US dollar but don’t reward holders for keeping them. Yield-bearing stablecoins are different they automatically pass on returns from underlying assets or strategies to token holders.
There are three major models in use today:

1. Tokenized Treasuries and Money Market Funds
These are backed by safe assets like short-term US Treasuries or bank deposits. The yield from those assets is distributed to holders, often by increasing token balances or adjusting value. Think of them as blockchain wrapped versions of traditional cash equivalent funds.
2. Decentralized Finance (DeFi) Savings Wrappers
Protocols such as Sky (formerly MakerDAO) allow users to lock stablecoins like DAI into a savings module. When wrapped into tokens like sDAI, your balance grows at a variable rate set by protocol governance.
3. Synthetic Yield Models
These use derivatives or staking strategies to generate returns. For example, synthetic stablecoins may earn from crypto funding rates or validator rewards. They can offer higher yields, but also come with higher volatility.

How to Earn Passive Income with Yield-Bearing Stablecoins

Yes, it is possible to earn steady returns but the process depends on the stablecoin you choose. Here’s a step-by-step approach:
Choose Your Stablecoin Type

For low risk: Tokenized Treasury backed coins.
For balanced exposure: DeFi wrappers like sDAI.
For higher yield (but riskier): Synthetic models.
Acquire the Stablecoin

Buy them through centralized exchanges (with KYC).
Or mint directly through protocol websites (though often limited to institutions or specific regions).
Hold in Your Wallet
Some stablecoins rebase (increase balances), while others grow in redemption value over time.

Leverage DeFi for Extra Returns
Beyond built-in yield, these tokens can also be used in lending platforms, liquidity pools, or vaults though this increases complexity and risk.

Track Taxes and Records
Rewards, rebases, or balance increases are often considered taxable income when received. Always keep records.

Examples of Yield-Bearing Stablecoins
USDY (Ondo Finance): A tokenized note backed by Treasuries and deposits, available only to non-US users with KYC/AML checks. Functions like a rebasing token reflecting Treasury yields.

sDAI (Sky): A wrapper for DAI placed into the Dai Savings Rate. Your balance grows at a governance-set variable rate. Widely integrated across DeFi.

Synthetic Stablecoins (e.g., sUSDe by Ethena): Uses a mix of long crypto positions and short derivatives to maintain stability while generating returns. Higher yield potential, but also greater market risk.

Key Risks to Keep in Mind

While attractive, yield-bearing stablecoins are not risk-free:
Regulation: US and EU laws prohibit stablecoin issuers from paying direct yield to retail investors. Access is often restricted by geography.
Market Risks: Synthetic models depend on volatile crypto markets.
Operational Risks: Smart contracts, protocol governance, or custody arrangements may fail.
Liquidity Risks: Some tokens have redemption restrictions or lock-ups.

Final Thoughts

Yield-bearing stablecoins represent an exciting way to earn passive crypto income in 2025. By combining stability with yield, they bridge traditional finance and decentralized finance.
However, they are not the same as holding cash in a bank. Every model carries trade-offs whether regulatory hurdles, market exposure, or liquidity risks.

The smartest strategy is to diversify across issuers and models, size positions carefully, and always keep up to date with changing rules in your region.With the right approach, yield-bearing stablecoins can be a valuable addition to any crypto investor’s passive income toolkit.

⚠️ Disclaimer: This article is for educational purposes only. It does not constitute financial or investment advice. Always do your own research before making investment decisions.