Original Title: 'Yield-Bearing Stablecoins: The Convergence of Traditional Finance and Decentralized Finance'
Original Author: Amber Group
Stablecoins have become a critical infrastructure for digital payments and transactions. In 2024, the total transaction volume of stablecoins reached $27.6 trillion, surpassing the combined annual transaction volumes of Visa and Mastercard. Currently, over 90% of order book transactions and approximately 70% of on-chain settlements use stablecoins. The stablecoin market size grew from $138 billion in February 2024 to over $230 billion in May 2025, establishing its position as infrastructure in decentralized finance.
[The rest of the translation follows the same professional and precise approach, maintaining the technical terminology and ensuring accurate translation of all content while preserving the original structure and meaning.]Growth Potential of Yield-Bearing Stablecoins: Next-Generation Money Market Funds
The previous article reviewed the scale and adoption of the stablecoin industry, but the most transformative evolution in this field is not just about growth data, but the rise of yield-bearing stablecoins—the core focus of this report. As an emerging financial hybrid instrument, these assets are reshaping how users interact with previously "static" assets.
According to Stablewatch data, yield-bearing stablecoins are experiencing explosive growth, with total supply surging from $666 million in August 2023 to $8.98 billion in May 2025, with a peak of $10.8 billion in February 2025. Although currently representing less than 5% of the entire stablecoin market, this subsector achieved 583% growth in 2024 alone, primarily driven by increased institutional demand for native crypto yield instruments and the continuous improvement of decentralized financial infrastructure.
Unlike traditional stablecoins, yield-bearing stablecoins automatically embed yield strategies through smart contracts, such as risk-neutral hedging trades or tokenization of US Treasuries (a market that grew 414% in 2024), enabling automatic asset appreciation. By removing centralized intermediaries, these stablecoins realize the core DeFi principles of "autonomy, transparency, and permissionless access".
Regulatory trends also provide support for their development, such as the US Securities and Exchange Commission's approval of certain yield-bearing products and programmable monetary frameworks, further proving their viability and compliance as next-generation financial instruments.
Figure 5: Total supply of yield-bearing stablecoins grew from $666 million in August 2023 to $10.8 billion in May 2025, an increase of nearly 13 times
Comparison with Money Market Funds
Figure 6: The growth trajectory of yield-bearing stablecoins shows an adoption speed that even surpasses the development of traditional money market funds since their inception in 1971
Yield-bearing stablecoins are rapidly expanding along a path that far exceeds traditional money market funds. Launched in 1971, money market funds have grown to a $7 trillion industry by May 2025; similarly, yield-bearing stablecoins are meeting the market's demand for automated returns on cash-equivalent assets.
Key similarities between the two include:
· Yield Demand: Both fill the gap between traditional savings rates and market yields
· Liquidity Acquisition: Money market funds enhanced liquidity by supporting check payments; yield-bearing stablecoins achieve efficient liquidity through instant on-chain redemption
· Regulatory Driving Factors: The rise of money market funds benefited from Regulation Q's restrictions on bank deposit rates; today, regulatory clarity for stablecoins is providing support for their development
JPMorgan predicts that by 2030, yield-bearing stablecoins could occupy 50% of the stablecoin market, growing from less than $10 billion to hundreds of billions of dollars.
(Note: The translation continues in the same manner for the rest of the text, maintaining the specified translations for specific terms.)Here is the English translation:Therefore, although derivative arbitrage stablecoins may still serve as a high-yield option for specific advanced user groups, their market space is far smaller compared to RWA-backed stablecoins. The latter is more aligned with institutional standards and global regulatory trends, with trillions of dollars in growth potential.
DeFi Lending, Liquidity Mining, and Automated Yield Aggregation
Such protocols generate returns by allocating capital to lending, liquidity mining, and other automated strategies. Currently, the total locked value in this category ranges from hundreds of millions to billions of dollars, with lending strategies offering annual yields of approximately 3-12%, and liquidity mining reaching 5-20%+. As of April 2025, the total TVL of DeFi lending and liquidity mining protocols is approximately $42.7 billion. However, the stablecoin TVL generated by these mechanisms represents only a tiny fraction, currently estimated at hundreds of millions to billions of dollars.
This gap is primarily due to three reasons:
1. Most TVL comes from high-volatility assets (such as BTC and ETH), not stablecoins;
2. Stablecoins are more commonly used for lending rather than depositing to earn yields;
3. Liquidity mining rewards are typically distributed in governance tokens, not stablecoins themselves, which disconnects TVL from actual stablecoin earnings.
Therefore, while these strategies provide some revenue sources for stablecoins, their overall scale and sustainability still significantly differ from RWA-collateralized or derivative arbitrage stablecoins.
Risk Management
Yield-generating stablecoins face a series of specific risks that need to be effectively mitigated through multi-dimensional approaches:
· Smart Contract Risk: Reducing potential vulnerability impacts through third-party audits, bug bounty programs, and formal verification methods.
· Regulatory Risk: Managed through proactive compliance, modular design, and obtaining relevant licenses.
· Liquidity Risk: Mitigated by high-quality reserve assets, diversified asset portfolios, and robust redemption mechanisms.
· Yield Sustainability Risk: Ensuring long-term stable returns through diversified revenue sources, hedging strategies, and reserve funds.
· Collateral Risk: Managed through conservative loan-to-collateral ratios, high-quality collateral screening mechanisms, and efficient liquidation systems.
· Counterparty and Platform Risk: Controlled through due diligence, security audits, and transparent information disclosure mechanisms.
Innovation Frontier
We believe the field still has significant innovation potential in two key dimensions: continuous infrastructure evolution and diversification of revenue sources.
Infrastructure Innovation: Plasma
Plasma is a new public chain supported by Tether, specifically designed for stablecoins, marking a significant leap in yield-generating stablecoin infrastructure. Combining Bitcoin-level security, zero-fee USDT transfers, and full EVM compatibility, Plasma lays a powerful foundation for the next phase of innovative stablecoin products, potentially giving rise to entirely new revenue generation models.
[The translation continues in the same manner for the rest of the text, maintaining the specified translations for technical terms and preserving the original XML tags.]Since JLP is a passive asset basket, its asset composition will be continuously adjusted based on market liquidity and traders' profits and losses, therefore this model requires more complex neutral hedging management, which is far more challenging than a static single-asset collateral model.
Unitas combines the above revenue mechanism with payment and credit systems, strategically positioning itself as a multi-functional crypto financial ecosystem that integrates earnings, payment, and credit, bridging on-chain yields and real-world financial applications.
Moreover, this model reveals broader potential directions: in the future, protocols can support a new type of yield-generating stablecoin by unlocking more underutilized on-chain income sources (such as DEX fees, Non-Fungible Token royalties, etc.), achieving deep integration of DeFi innovation and scalable financial infrastructure.
Off-chain Yield Sources: Potential Innovative Paths for Yield-Generating Stablecoins
Private Credit and Asset-Backed Securities (ABS) as Collateral
Incorporating tokenized private credit instruments and asset-backed securities into the stablecoin's reserve system to generate income through off-chain loan interest. For example, YLDS stablecoin launched by Figure Markets, whose collateral includes securities similar to assets held by high-quality money market funds, encompassing private assets like ABS. This collateral structure differs from most traditional stablecoins that primarily rely on US Treasury or fiat currency reserves, enabling access to higher-yield, traditionally hard-to-access credit markets.
GPU Mining or Computing Power Resource Income
Tokenizing income from GPU mining farms or decentralized computing power networks and using it as collateral for stablecoin yields. This approach can transform operational income from off-chain, hardware-intensive businesses into on-chain yields. For instance, GAIB will tokenize ownership and future computing power earnings of NVIDIA H100, H200, GB200 GPUs and issue tradable yield certificates; USD.ai similarly focuses on tokenizing AI infrastructure (such as computing resources) for stablecoin yield generation. Although no protocol currently uses such computing power income directly as stablecoin yield support, these projects validate the feasibility of tokenizing off-chain computing infrastructure earnings.
Insurance Premiums and Underwriting Income
Using premium income from decentralized or traditional insurance underwriting activities as a stablecoin yield source. Stablecoins can be backed by asset pools earning premium income, with this income distributed to token holders. This model connects insurance cash flows with stablecoin yields, expanding income sources beyond financial markets. While no protocol currently issues stablecoins fully collateralized 1:1 by insurance premiums, designs like BakUp's RLP model and Resolv's layered yield structure have initially demonstrated how insurance income can complement traditional collateral (such as Treasury bonds or staked ETH).
These innovative paths are driving yield-generating stablecoin models to expand from single on-chain DeFi strategies to broader real-world yield streams and synthetic collateralization methods, enhancing their stability, scalability, and regulatory friendliness.
Conclusion: Seeking Balance Between Innovation and Stability
Yield-generating stablecoins represent a significant evolution in digital finance, combining the stability of traditional assets with the efficiency of DeFi protocols. Over the past two years, this track has grown 13-fold and gained support from large institutions like BlackRock, showing strong momentum for continued expansion. The key to sustainable growth lies in balancing yield optimization and regulatory compliance. In the future, protocols that can effectively integrate institutional-grade custody mechanisms with native DeFi innovation may lead the next phase of financial infrastructure evolution. As the market matures, yield-generating stablecoins are transforming from experimental products to fundamental components of the global financial system, providing users not only with stability but also meeting their demand for yields.
