Yield-Bearing Stablecoins: The Convergence of TradFi and DeFi

Stablecoins have become essential infrastructure for digital payments and trading. In 2024, stablecoin transaction volumes reached $27.6 trillion, surpassing the combined annual throughput of Visa and Mastercard. Today, over 90% of order book trades and 70% of on-chain settlements use stablecoins. The stablecoin market grew from $138 billion in February 2024 to over $230 billion by May 2025, establishing these assets as foundational DeFi infrastructure.

More recently, we have seen the creation and rapid adoption of yield-bearing stablecoins, which grew 13x from $660 million in August 2023 to approximately $9 billion by May 2025, representing about 4% of the total stablecoin market. Assuming this growth continues, this segment could capture 50% of the market in coming years, potentially reaching several hundred billion dollars in total value locked (TVL).

This report investigates the rise of yield-bearing stablecoins, mapping their development from early iterations to their current surge — a trajectory paralleling the growth of traditional money market funds (MMFs). The analysis further unpacks risks inherent to their design while spotlighting potential innovation frontiers. This synthesis of historical context and emerging trends provides a roadmap for understanding their evolving role in defi ecosystems.

Figure 1: Stablecoin market capitalization grew from $5B in 2020 to $230B+ by May 2025, with notable volatility during the 2022–2023 period, following the collapse of FTX

The Stablecoin Market Today

To set the stage for a deeper discussion on yield-bearing stablecoins, we begin with a brief overview of the stablecoin market today.

The stablecoin market has cemented its role as a foundational pillar of digital finance, achieving staggering growth with its total market capitalization surging over 60%, from 138 billion in February 2024 to over 230 billion by May 2025. Originally conceived as price-stable alternatives to volatile cryptocurrencies, stablecoins now underpin trillions of dollars in global transactions. In 2024 alone, stablecoin transaction volumes reached $27.6 trillion, eclipsing the combined annual throughput of Visa and Mastercard and underscoring their critical function as value conduits in both centralized and decentralized ecosystems

Figure 2: In 2024, stablecoins processed $27.6T in transactions, exceeding the combined volume of Visa and Mastercard

Stablecoin TVL by Blockchain

Figure 3: Ethereum dominates with 52% of existing stablecoins

Ethereum

Ethereum hosts $124 billion in stablecoin TVL (52% of the market), with USDC holding 42%, USDT 34%, and DAI 18%. The network’s institutional adoption through DeFi protocols like Aave, which holds approximately $40 billion in stablecoin deposits, drives continued growth.

Tron

Tron’s stablecoin TVL expands to $66.9 billion, driven by USDT’s 89% dominance in cross-border payments. The network processes 35% of global stablecoin transactions, particularly in emerging markets.

Solana

Solana’s $11.5 billion stablecoin TVL, is fueled by its capacity to process 57.77 million transactions daily at sub-$0.001 fees, making it the preferred ecosystem for high-efficiency trading.

BNB Chain

BNB Chain hosts $9.2 billion in stablecoin TVL, primarily FDUSD (51%) and USDT (39%).

Arbitrum, Polygon and Avalanche

• Arbitrum: TVL of $2.6 billion, with USDC (52%) and DAI (31%).
• Polygon: TVL of $1.8 billion, led by USDC (48.6%) and USDT (37.2%).
• Avalanche: TVL of $1.5 billion, with USDT (67%) and USDC (28%).

Stablecoin Users by Blockchain

Figure 4: USDC and USDT users by chain

The stablecoin users by chain chart reveals compelling disparities between user adoption patterns and total value locked (TVL) distribution. While some networks demonstrate massive user engagement with relatively modest capital deployment, others maintain outsized TVL despite smaller user bases, highlighting fundamental differences in user behavior, transaction patterns, and economic utility across chains.

​Tron: High-Value, Low-Frequency Dominance​

Tron leads in user metrics with ​3.1 million weekly active stablecoin users, yet exhibits modest yearly growth compared to rivals. Despite this, it dominates ​41% of all stablecoin transactions, driven by its role as a hub for high-value, low-frequency USDT transfers, processing ​​over $500 billion monthly. Tron’s infrastructure remains critical for institutional-scale liquidity, balancing massive volume with slower user-base expansion.

​BNB Chain: Retail Trading Hub​

With ​2–3 million weekly active stablecoin users, BNB Chain has emerged as a high-engagement network, even briefly overtaking Tron in user activity this year. The chain processes ​1.2 million daily stablecoin transactions​ (Q1 2025), marking a ​28% YoY growth, while its ​​$10.1 billion stablecoin TVL​ (4.4% market share) underscores accelerating adoption. This growth is fueled by ​zero-fee swaps​ and deep integration with Binance’s ecosystem, positioning BNB Chain as a hub for traders and capital seeking cost efficiency and institutional-grade infrastructure.

Solana: High Throughput, Microtransaction Focus

Solana has around 800k weekly active users which has also grown at a very fast speed over the past two years. The Solana network processes nearly 10 million stablecoin transactions per week. This aligns with Solana’s high-throughput, low-fee architecture.

​Ethereum: Institutional Yield Engine​

While Ethereum’s ​600,000 weekly stablecoin users​ trail newer chains in raw user counts, its dominance in institutional capital and high-value transactions remains unmatched. The chain processes the ​highest average stablecoin transaction sizes​ among major blockchains: ​​97,900 for USDC ​and ​41,700 for USDT — figures dwarfing retail-centric chains with average transaction sizes under $1,000. This reflects Ethereum’s entrenched role in ​large-scale institutional activity.

Layer 2s: Emerging Ecosystems

Arbitrum (250K DAUs) and Optimism (150K DAUs) demonstrate accelerating adoption, though their combined TVL remains modest.

With 30 million monthly active addresses (+53% YoY) facilitating trillions in monthly transfers, stablecoins have become foundational to multi-chain infrastructure and DeFi applications.

The Growth Potential of Yield-Bearing Stablecoins: Next-Generation Money Market Funds

While the previous section outlined the scale and adoption of the stablecoin industry, its most pivotal evolution lies beyond mere growth metrics: the emergence of yield-bearing stablecoins, which form the core focus of this report. This niche segment has emerged as a vanguard of hybrid financial instruments, reshaping how users engage with assets once considered “static.”

According to data from Stablewatch, yield-bearing stablecoins have experienced explosive growth, with total supply surging 13-fold from 666million in August2023 to 8.98 billion by May 2025 — peaking at $10.8 billion in February 2025 — though still representing less than 5% of the total stablecoin market. This niche segment grew 583% in 2024 alone, fueled by institutional demand for crypto-native yield solutions and advancements in decentralized finance (DeFi) infrastructure. Unlike conventional stablecoins, these instruments autonomously generate returns through strategies like delta-neutral trading or tokenized U.S. Treasuries (a market itself expanding 414% in 2024), embedded directly into stable assets via smart contracts. By eliminating centralized intermediaries, they operationalize DeFi’s core principles of autonomy, transparency, and permissionless access. Regulatory tailwinds, including SEC approvals for yield-bearing products and programmable money frameworks, further validate their viability as next-generation financial tools

Figure 5: Yield-bearing stablecoins experienced 13x growth from $666M in August 2023 to $10.8B by May 2025

The Money Market Fund Parallel

Figure 6: Growth trajectory comparison shows yield-bearing stablecoins following an even more rapid adoption pattern than money market funds since their introduction in 1971

Yield-bearing stablecoins are following a growth trajectory that dwarfs the growth of traditional money market funds (MMFs) following their creation in 1971. Like MMFs — a $7 trillion industry as-of May 2025 — yield-bearing stablecoins address the need for automated yield on cash-equivalent assets.

Key parallels include:

• Yield demand: Both address gaps between traditional savings rates and market opportunities
• Liquidity access: MMFs enabled check-writing; stablecoins provide instant on-chain redemptions
• Regulatory catalysts: The rate caps imposed on bank deposits by Regulation Q drove MMF adoption; regulatory clarity now supports stablecoin growth

JPMorgan projects yield-bearing stablecoins could capture 50% of the stablecoin market by 2030, growing from under $10 billion today to hundreds of billions.

The Evolution of Yield-Bearing Stablecoins and Major Yield Generation Mechanisms

Historical Development

2017–2019: Foundations of Static Stablecoins

• Tether (USDT, 2014) and USD Coin (USDC, 2018) introduced centralized fiat-backed stablecoins focused on price stability without native yield.
• MakerDAO’s DAI (2017) pioneered decentralized collateralization but initially lacked integrated yield mechanisms, emphasizing value preservation.

2020–2022: DeFi Boom and Early Yield Experiments

• MakerDAO’s Dai Savings Rate (DSR) enabled 3–8% APY through overcollateralized lending, marking the first decentralized yield integration.
• Algorithmic Models like TerraUSD (UST) attempted high-yield mechanisms but eventually failed due to inherent lack of long term sustainability.
• Frax Finance emerged with a hybrid fractional-algorithmic model, aimed to optimize capital efficiency while avoiding the fragility of purely algorithmic designs like Terra’s UST

2023: Institutional-Grade Hybrid Strategies and New Entrants

• Ondo Finance issued RWA-backed stablecoin (USDY) collateralized by tokenized U.S. Treasuries, attracting institutional capital.
• Level Finance produced returns through low-risk lending activities on established decentralized finance (DeFi) platforms like Aave.
• Aave launched GHO in July 2023, as a decentralized, overcollateralized stablecoin.

2024: Mainstream Adoption and Rapid Growth

• Ethena officially launched its USDe synthetic dollar on the Ethereum mainnet in February 2024
• BlackRock’s BUIDL launched a $500M tokenized Treasury fund offering 5%+ APY, validating RWA collateralization models.
• Usual’s USD0 started to grow rapidly since its launch in June 2024.
• Resolv introduced risk-tiered yield vaults, allowing users to select conservative to leveraged exposure (4.3% to 15.2% APY).

2025: Diversification, Automation, and Regulatory Clarity

• Sky Protocol introduced AI-driven yield optimization methods, with AI-powered stablecoins and yield optimization becoming a key focus in the DeFi + AI boom around early 2025.
• In Feb 2025, YLDS became the first yield-bearing stablecoin approved by the SEC, offering an APR of 3.85%.
• Aave’s sGHO savings token proposal aimed to expand GHO’s utility by offering a low-risk, yield-bearing stablecoin product backed by Aave’s native yield streams. This product is sustained by revenue generated from USDC native yield on Aave V3.
• Regulatory clarity further improved, with the SEC approving yield-bearing stablecoins as securities in early 2025. The STABLE Act and GENIUS Act were introduced, signaling a more defined regulatory framework for stablecoins

Core Yield Sources

Real-World Asset (RWA) Collateralization

These tokens are backed by and generate yield from traditional financial assets, most commonly US Treasuries. The tokenized Treasury market reached $5 billion in March 2025, offering yields between 4.8% and 6.8%. This segment benefits from regulatory compliance and institutional adoption

Figure 7: The tokenized US Treasury market saw impressive growth in 2024, reaching $6B by May 2025

BlackRock’s BUIDL leads with approximately $1.7 billion AUM, followed by Ondo Finance’s USDY, Mountain Protocol’s USDM, and Usual Money’s USD0. This segment has the largest total addressable market, potentially reaching $3.5-$10 trillion by 2030.

Derivatives Arbitrage

These stablecoins aim to produce yield through low-risk derivatives trades, often making use of futures contracts. Ethena’s sUSDe capitalizes on perpetual futures arbitrage opportunities through delta-neutral hedging strategies, delivering APYs between 10% and 27%. This enabled growth from $65 million to $3.5 billion in market cap within a year.

Yet the sector’s potential is inherently bounded. Returns depend on finite open interest in perpetual markets and volatile funding rates — factors that cap scalability compared to traditional yield sources like tokenized Treasuries. Regulatory scrutiny further clouds the outlook. Recent legislative efforts, including the Genius Act and Stable Act, target these instruments as “non-compliant,” favoring regulated real-world asset (RWA) tokenization instead.

While derivatives arbitrage stablecoins will likely persist as a high-yield option for sophisticated users, their niche status contrasts sharply with the trillion-dollar runway of RWA-backed stablecoins, which align more seamlessly with institutional frameworks and global regulatory priorities.

DeFi Lending, Liquidity Mining and Automated Yield Aggregation

These protocols allocate capital across lending, yield farming, and other automated strategies. Current TVL in this category reaches several hundred million to a few billion dollars, offering yields of 3–12% APY for lending and 5–20%+ for liquidity mining.

As of April 2025, DeFi lending and liquidity mining protocols collectively hold around $42.7 billion in total value locked (TVL). However, the TVL specifically attributable to yield-bearing stablecoins generating yield through lending and liquidity mining is significantly smaller, currently estimated in the range of several hundred million to a few billion dollars.

This gap stems from three factors: (1) TVL in these protocols is dominated by volatile assets like BTC and ETH; (2) stablecoins are more commonly borrowed than deposited for yield; and (3) liquidity mining rewards are often paid in governance tokens rather than stablecoins, decoupling TVL from actual yield accrual.

Risk Management

Yield-bearing stablecoins face specific risks requiring careful mitigation:

• Regulatory Risks: Managed by proactive compliance, modular design features, and obtaining necessary licenses.
• Liquidity Risks: Mitigated through high-quality reserve assets, diversified portfolios, and robust redemption mechanisms.
• Yield Sustainability: Handled via diversified yield sources, hedging strategies, and reserve funds.
• Collateral Risks: Managed through conservative loan-to-value ratios, quality collateral selection, and efficient liquidation systems.
• Counterparty and Platform Risks: Managed through thorough due diligence, security audits, and transparent reporting.

Innovation Frontiers

​We identify substantial innovation potential across two critical dimensions: infrastructure advancement and yield source diversification.​​

Infrastructure Advancement: Plasma

The launch of ​Plasma, a new Layer 1 blockchain purpose-built for stablecoins and backed by Tether, promises a significant leap forward for yield-bearing stablecoin infrastructure. By combining ​Bitcoin-level security, ​zero-fee USDT transfers, and ​full EVM compatibility, Plasma creates a uniquely powerful foundation designed to unlock entirely new categories of yield-generating stablecoin products.

The current stablecoin ecosystem struggles under an infrastructure not designed for its specific needs, hindering innovation in yield generation. Existing blockchains typically treat stablecoins like any other token, failing to optimize for their unique characteristics or enable sophisticated yield mechanisms. Traditional methods — like depositing into lending platforms or liquidity pools — add significant friction through manual processes, transaction costs, and complex management. This constant need for active strategy switching and transaction monitoring erodes net yields, limiting widespread adoption.

​Plasma directly addresses these limitations with a specialized technical architecture:

• ​Zero-Fee USDT: Catalyst for Micro-Yield:​​ Plasma’s most impactful innovation is its ​zero-fee USDT transfer capability​ via a delay-based prioritization system. Eliminating transaction costs removes the fundamental barrier to economic micro-yield strategies, frequent automated rebalancing, and granular (e.g., hourly) yield distribution — models cost-prohibitive on other networks where fees devour small returns.
• ​Flexible Transaction Costs:​​ The ​custom gas token functionality​ allows fees to be paid in USDT or other assets, not a proprietary token. This eliminates the need to manage separate token balances, streamlining user experience and enabling more complex, automated yield strategies that require frequent transactions.
• ​Bitcoin Security Anchor:​​ By periodically anchoring state data to the Bitcoin blockchain, Plasma achieves ​​”permissionless finality, stronger censorship resistance, and a universally verifiable source of truth.”​​ This robust security layer is critical for fostering institutional trust in sophisticated yield-bearing products.
• ​EVM Compatibility & Innovation:​​ Seamless ​EVM compatibility​ ensures existing DeFi protocols and yield mechanisms can port over instantly, accelerating adoption. Crucially, it also provides the fertile ground for ​Plasma-native innovations, such as:

a) Programmable stablecoins that auto-allocate holdings to optimal yield strategies based on market conditions.

b) Time-locked stablecoins offering enhanced yields for longer commitments.

c) New distribution and rebalancing mechanisms impossible on fee-burdened networks.

​In essence, Plasma is a tailored environment where the unique properties of stablecoins and the demands of yield generation are central to the design. By removing the friction of fees, simplifying transaction execution, providing iron-clad security, and enabling deep customization, Plasma has the potential to redefine the possibilities for yield-bearing stablecoins.

Yield Source Diversification

On-chain Yield Sources — Unitas

Unitas operates a decentralized multi-chain payment protocol featuring USDu, a yield-bearing stablecoin supported by delta-neutral hedging strategies. A key component of Unitas’ ecosystem is the Jupiter Perpetuals Liquidity Provider token (JLP), which represents liquidity provider shares on the Jupiter perpetuals trading platform.

How JLP Generates Yield

• Revenue Sharing: JLP holders receive approximately 75% of the trading fees generated by the Jupiter perpetuals platform, including fees from leveraged positions and swaps.
• Fee Reinvestment: Instead of distributing yield directly, fees are reinvested into the JLP pool, increasing the virtual price of JLP tokens and compounding returns for holders.
• Market Exposure: JLP tokens represent a basket of assets including SOL, ETH, BTC, USDC, and USDT. Holders are exposed to price movements of these underlying assets.
• Yield Range: Estimated APYs vary weekly based on trading volume and market conditions but have historically delivered high double-digit returns in periods of elevated trading activity and volatility.
• Trader Profit vs. Pool Loss: When traders profit, JLP holders may experience reduced returns or losses, as trader gains come at the expense of the liquidity pool.

Key Innovations of Unitas

• Unitas combines multiple yield sources including trading fees generated from perp exchange, staking rewards, perpetual funding spreads, and efficient collateral management for optimized returns.
• USDu stablecoin uses a delta-neutral hedging strategy on multiple assets such as staked SOL, ETH, and BTC to maintain price stability while generating yield.
• Dynamic multi-asset collateral backing ensures a robust and transparent peg, reducing volatility risks.
• Integration with real-world payment systems through the Unitas Card, allowing users to spend crypto-backed credit seamlessly.
• Interoperability across CeFi and DeFi ecosystems, facilitating liquidity and utility for both institutional and individual users.

Diverging from conventional base-layer staking frameworks, Unitas employs a hybrid yield extraction strategy that capitalizes on two core components of Jupiter’s perpetual exchange ecosystem: (1) trading fee accumulation and (2) funding rate arbitrage opportunities.

This approach requires advanced delta-neutral hedging, because the JLP pool is a passive basket whose composition drifts with liquidity flows and trader PnL, adding complexity compared to static single-asset collateral models. By integrating these mechanisms with credit and payment rails, Unitas strategically positions itself as a multi-service ecosystem bridging crypto-native yield and real-world financial utility.

The model also highlights a broader opportunity: protocols could unlock untapped revenue streams (e.g., DEX fees, NFT royalties) to underpin novel yield-bearing stablecoins, blending DeFi innovation with scalable financial infrastructure.

Off-chain Yield Sources

Potential Innovations for Yield-Bearing Stablecoins Using Off-Chain Sources

• Private Credit and Asset-Backed Securities as Collateral
  Incorporate tokenized private credit instruments and asset-backed securities (ABS) into the stablecoin’s reserve backing to generate yield from interest payments on these off-chain loans. For example, Figure Markets’ YLDS stablecoin is backed by securities similar to those held in prime money market funds, which include private assets such as asset-backed securities (ABS). This backing differentiates it from many traditional stablecoins that are typically backed by U.S. Treasuries or fiat currency reserves. This approach taps into higher-yielding, traditionally less accessible credit markets.
• Revenue from GPU Mining or Compute Resources
  Tokenize revenues from GPU mining farms or decentralized compute networks and use these as yield-generating collateral backing stablecoins. This would convert off-chain operational income streams from hardware-intensive activities into on-chain yield. GAIB directly tokenizes ownership of GPUs (such as NVIDIA H100, H200, GB200) and their future revenue and rewards into tradable tokens. USD.ai operates in a similar space of AI infrastructure tokenization and yield generation by leveraging GPU compute resources. While no existing protocol directly issues yield-bearing stablecoins backed by compute resources, projects like ​GAIB​ and ​USD.ai​ demonstrate the viability of tokenizing GPU infrastructure.
• Insurance Premiums and Underwriting Revenues
  Leverage revenues from decentralized or traditional insurance underwriting as a yield source. Stablecoins could be backed by pools earning premiums or underwriting fees, distributing these returns to holders. This innovation would bridge insurance cash flows with stablecoin yield, diversifying income beyond financial markets. While no protocol yet directly backs stablecoins 1:1 with insurance premiums, models like BakUp’s RLP and Resolv’s tiered system demonstrate how insurance cash flows can complement traditional collateral (e.g., Treasuries, staked ETH).

These innovations expand the yield-bearing stablecoin model beyond purely on-chain DeFi strategies, incorporating diverse, real-world income streams and synthetic collateralization methods. They enable more stable, scalable, and regulatory-friendly yield opportunities.

Conclusion: Balancing Innovation and Stability

Yield-bearing stablecoins represent a significant evolution in digital finance, combining the stability of traditional assets with the efficiency of DeFi protocols. With 13x growth in just two years and backing from major institutions like BlackRock, this segment is positioned for continued expansion.

The key to sustainable growth lies in balancing yield optimization with regulatory compliance. Protocols that successfully integrate institutional-grade custody with DeFi-native innovation will likely lead the next phase of financial infrastructure development.

As the market matures, yield-bearing stablecoins are moving beyond experimental products to become essential components of the global financial system, offering users the stability they need with the returns they want.

Disclaimer

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