A dollar that pays you something is a dollar taking a risk on your behalf. The only question worth asking is which one.
Nadia OkoroPolicy & Consumer Editor · Regulation, tax, stablecoins and the products retail users hold
Yield-bearing stablecoins fall into four families by source of return: Treasury-backed tokens passing through short-dated government yield, delta-neutral synthetics earning perpetual funding, over-collateralised CDP stablecoins paying out borrower interest, and lending-funded tokens routing deposits into DeFi markets. Treasury-backed carries issuer and regulatory risk; delta-neutral depends on funding staying positive; the rest carry contract, oracle and collateral risk. Match the yield source to the risk you can hold.
A fiat-backed stablecoin holds Treasury bills and keeps the interest. Yield-bearing stablecoins are variations on giving some of that back — or on generating return somewhere else entirely. The label covers at least four unrelated structures, and the risk profiles have almost nothing in common.
The simplest. The issuer holds short-dated government paper and distributes the yield to holders, either by rebasing the balance or by letting the token appreciate against the dollar. The return is the risk-free rate minus a fee, and it moves with policy rates.
The risks are the ones every fiat-backed stablecoin has: the issuer's solvency and honesty, the custodians holding the paper, whether tokenholders have a direct claim on reserves in an insolvency, and freeze functions. Add securities regulation — a token that pays a return on a pooled asset looks like a fund in several jurisdictions, and access is often restricted accordingly.
What to check: the attestation and its scope, using the framework in attestation versus audit, and the maturity profile of the paper.
The structure behind USDe and its imitators. Hold a spot asset, short an equivalent perpetual position, and the combination is roughly dollar-neutral. The yield is the funding rate paid by leveraged longs, sometimes plus staking yield on the spot leg.
This is a real trade, executed at scale, and when funding is positive it pays well. It is also not a Treasury-backed dollar and should not be held as if it were. Three exposures define it: funding can turn negative, at which point the position costs money to hold; the short leg lives on exchanges, so venue failure or settlement problems are direct losses; and collateral is held with custodians whose arrangements are the actual security model.
The honest summary is that it is a professionally managed basis trade in a token wrapper. Sized as a yield position, reasonable. Held as the cash leg of a portfolio, a category error.
Users lock volatile collateral and mint a stablecoin; borrowers pay interest; a savings rate distributes part of that interest to holders who deposit the stablecoin into the protocol's savings contract.
The yield is funded by real borrower demand plus, increasingly, by the protocol's own allocations to Treasury products. The risks are collateral quality, oracle correctness, liquidation working under stress, and governance — the savings rate is a parameter that a token vote can change, and the collateral mix is too.
This family has the longest track record of the three, which is worth something no model can supply.
A token or vault deposits your stablecoins into lending markets and passes the interest back, sometimes rotating between venues for the best rate. Return is borrower interest, occasionally augmented with incentives.
Everything that can go wrong in the underlying market flows through: bad debt, illiquidity when utilisation is high and you cannot withdraw, and the contract risk of the wrapper on top of the contract risk of each venue it uses. Whether losses are contained or socialised depends on the market structure, which is why isolated versus shared pools matters here specifically.
Compare the offered yield against short-dated government paper. A token paying below it is charging a management fee for convenience. A token paying at it is passing through Treasury yield. A token paying meaningfully above it is doing something else, and that something else is the product — so identify it before depositing.
Spreads of two or three points above the risk-free rate can be explained by borrower demand or funding. Spreads of ten or twenty points are either leveraged, incentivised with a token that has to be sold, or accepting credit risk that has not yet defaulted.
Yield-bearing stablecoins are used as collateral for borrowing, and the borrowed funds are frequently used to buy more of the same token. That loop concentrates a single structure's failure into a cascade, because everyone unwinds through the same exit at the same moment.
It also means a token's liquidity profile matters as much as its backing. A synthetic dollar redeemable only through a process, held in size by leveraged positions priced against a thin secondary market, has a different worst day than one with deep on-chain liquidity and open redemption. That distinction — backing versus redeemability — is why the stablecoin ratings score reserve quality, redemption access and liquidity separately rather than collapsing them into a single safety number.
Treat these as three different assets. The cash you cannot afford to lose belongs in the highest-scoring fiat-backed tokens with open redemption and monthly attestations, earning nothing or close to it. Yield-seeking dollars can sit in Treasury pass-through or a savings rate with a long record. Delta-neutral and lending-funded positions are investments with a stable unit of account, and should be sized as investments — because on the day the structure is tested, the peg is the first thing that moves.
A first-principles map of decentralized finance — the building blocks, the big protocol categories, and the honest risks — before you send a single transaction.
How liquid staking tokens let holders earn network rewards while keeping their capital free to lend, trade, or post as collateral.
A side-by-side breakdown of how fiat-backed, crypto-backed and algorithmic stablecoins each maintain their peg, and the specific failure mode that has taken each category down.