Yield-bearing stablecoins: The integration of traditional finance and decentralized finance

Original Title: "Yield-Generating Stablecoins: The Fusion of Traditional Finance and Decentralized Finance"

Original Author: Amber Group

Stablecoins have become an important infrastructure for digital payments and transactions. In 2024, the total trading volume of stablecoins reached $27.6 trillion, surpassing the combined annual transaction volume of Visa and Mastercard. Currently, over 90% of order book trades and about 70% of on-chain settlements are conducted using stablecoins. The market size of stablecoins grew from $138 billion in February 2024 to over $230 billion in May 2025, establishing their position as a foundational infrastructure in decentralized finance.

Recently, yield-generating stablecoins have emerged and been rapidly adopted, with their size growing from $660 million in August 2023 to approximately $9 billion in May 2025, a 13-fold increase, accounting for about 4% of the total stablecoin market. If this growth trend continues, this sector is expected to capture 50% of the stablecoin market in the coming years, with total locked value potentially reaching hundreds of billions of dollars.

This report aims to explore the rise of yield-generating stablecoins, tracing their development path from early forms to their current rapid growth—this trajectory is somewhat similar to the growth of traditional money market funds. We will also analyze the risks present in their design and focus on potential future innovation directions. By reviewing historical context and cutting-edge trends, this report hopes to provide a clear framework for understanding the evolving role of such stablecoins in the DeFi ecosystem.

Figure 1: The total market capitalization of stablecoins grew from $5 billion in 2020 to over $230 billion in May 2025, experiencing significant volatility during the period from 2022 to 2023, primarily influenced by the FTX collapse.

Current Overview of the Stablecoin Market

Before delving into yield-generating stablecoins, we will first briefly review the overall state of the current stablecoin market.

The stablecoin market has firmly established its position as a core pillar of digital finance, achieving remarkable growth in total market capitalization—from $138 billion in February 2024 to over $230 billion in May 2025, an increase of over 60%. Stablecoins were initially designed as price-pegged assets to combat the high volatility of cryptocurrencies, and today, they have become key tools supporting trillions of dollars in global trading activities.

In 2024 alone, the total trading volume of stablecoins reached $27.6 trillion, surpassing the combined annual transaction volume of Visa and Mastercard, highlighting their critical role as a medium of value transfer in both centralized and decentralized financial systems.

Figure 2: In 2024, the total trading volume processed by stablecoins reached $27.6 trillion, exceeding the combined annual transaction volume of Visa and Mastercard.

Total Locked Value of Stablecoins by Blockchain

Figure 3: Ethereum dominates stablecoin issuance, accounting for approximately 52% of existing stablecoins.

Ethereum

Ethereum holds approximately $124 billion in stablecoin total value locked (TVL), representing 52% of the entire market. Among these, USDC accounts for about 42%, USDT for 34%, and DAI for 18%. Its institutional adoption in decentralized finance protocols (such as Aave, which currently has about $40 billion in stablecoin deposits) is the main driver of its continued growth.

Tron

Tron's stablecoin TVL has expanded to $66.9 billion, primarily dominated by USDT (89%), widely used for cross-border payments. The network processes 35% of global stablecoin transactions, particularly holding a significant position in emerging markets.

Solana

Solana's stablecoin TVL is approximately $11.5 billion, benefiting from its high performance, capable of processing 57.77 million transactions daily with fees below $0.001, making it the preferred choice for high-efficiency trading ecosystems.

BNB Chain

BNB Chain has a stablecoin TVL of $9.2 billion, mainly composed of FDUSD (51%) and USDT (39%).

Arbitrum, Polygon, and Avalanche

· Arbitrum: TVL is $2.6 billion, with primary stablecoins being USDC (52%) and DAI (31%).

· Polygon: TVL is $1.8 billion, with USDC accounting for 48.6% and USDT for 37.2%.

· Avalanche: TVL is $1.5 billion, primarily consisting of USDT (67%) and USDC (28%).

Distribution of Stablecoin Users by Blockchain

Figure 4: Distribution of USDC and USDT users across various chains.

The distribution of stablecoin users across different blockchains reveals significant differences in user adoption patterns and total locked value. Some networks have a large number of users but relatively small locked amounts, while others carry disproportionately large TVL with a limited user base, reflecting fundamental differences in user behavior, trading characteristics, and economic utility across chains.

Tron: Dominated by High-Value, Low-Frequency Transactions

Tron leads with 3.1 million active stablecoin users weekly, although its annual growth rate is relatively moderate compared to other competitors. Nevertheless, the network processes 41% of global stablecoin transactions, primarily due to its core role in high-value, low-frequency USDT transfers, with monthly transaction volumes exceeding $500 billion. Tron's infrastructure is crucial for institutional-level liquidity, balancing high transaction volumes with slowing user growth.

BNB Chain: A Trading Hub for Retail Users

BNB Chain has approximately 2-3 million active stablecoin users weekly, making it one of the most active networks for user interaction, even surpassing Tron in active user counts at one point this year. In the first quarter of 2025, the chain processed about 1.2 million stablecoin transactions daily, a year-on-year increase of 28%. Its stablecoin TVL reached $10.1 billion, accounting for about 4.4% of the market share, demonstrating strong growth momentum. This growth is attributed to its zero-fee trading and deep integration with the Binance ecosystem, making it a hub for traders and capital seeking cost efficiency and professional infrastructure.

Solana: High Throughput, Micro-Transaction Oriented

Solana currently has about 800,000 active stablecoin users weekly, experiencing rapid growth over the past two years. The network processes nearly 10 million stablecoin transactions weekly, showcasing its high throughput and low fees, suitable for micro-transaction-intensive use cases.

Ethereum: Institutional-Level Yield Engine

Ethereum has 600,000 active stablecoin users weekly, lagging behind emerging public chains in user scale, but its dominant position in institutional capital and high-value transactions remains unshaken. The average transaction amount of stablecoins on Ethereum is the highest among all mainstream blockchains: USDC averages $97,900, and USDT $41,700, far exceeding the average of less than $1,000 on retail-oriented chains. This data reflects Ethereum's solid position as a core platform for large institutional activities.

Layer 2: Rapid Growth of Emerging Ecosystems

Layer 2 networks like Arbitrum (250,000 daily active users) and Optimism (150,000 daily active users) are rapidly developing, although their total TVL remains relatively small. Currently, stablecoins have become core components of multi-chain infrastructure and DeFi applications, with monthly active address numbers reaching 30 million, a year-on-year increase of 53%, and monthly transaction amounts reaching trillions of dollars, further solidifying their foundational position in the crypto ecosystem.

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

The previous section reviewed the scale and adoption of the stablecoin industry, but the most transformative evolution in this field lies not just in growth data itself, but in the rise of yield-generating stablecoins—this is the core focus of this report. As an emerging financial hybrid tool, these assets are reshaping users' utilization of what were originally "static" assets.

According to Stablewatch data, yield-generating stablecoins are experiencing explosive growth, with total supply skyrocketing from $666 million in August 2023 to $8.98 billion in May 2025, peaking at $10.8 billion in February 2025. Although they currently account for less than 5% of the entire stablecoin market, this segment achieved a 583% growth in just 2024, primarily driven by increased institutional demand for native crypto yield tools and the continuous improvement of decentralized financial infrastructure.

Unlike traditional stablecoins, yield-generating stablecoins automatically embed yield strategies through smart contracts, such as risk-neutral hedging trades or tokenization of U.S. Treasury bonds (which itself grew by 414% in 2024), achieving automatic asset appreciation. By eliminating centralized intermediaries, these stablecoins embody the core DeFi principles of "self-sovereignty, transparency, and permissionless access."

Regulatory trends also support their development, such as the U.S. Securities and Exchange Commission's approval of certain yield-generating products and programmable currency frameworks, further validating their feasibility and compliance as next-generation financial tools.

Figure 5: The total supply of yield-generating stablecoins grew from $666 million in August 2023 to $1.08 billion in May 2025, an increase of nearly 13 times.

Analogy with Money Market Funds

Figure 6: The growth trajectory of yield-generating stablecoins shows that their adoption rate even exceeds that of traditional money market funds since their inception in 1971.

Yield-generating stablecoins are rapidly expanding along a development path that far exceeds that of traditional money market funds. Money market funds were launched in 1971 and have grown into a $7 trillion industry by May 2025; similarly, yield-generating stablecoins are meeting the market's demand for automated yield on cash-equivalent assets.

Key similarities between the two include:

· Yield Appeal: Both fill the gap between traditional savings rates and market yields.

· Liquidity Access: Money market funds enhanced liquidity by supporting check payments; yield-generating stablecoins achieve efficient liquidity through on-chain instant redemptions.

· Regulatory Drivers: The rise of money market funds benefited from the Q Regulation's cap on bank deposit rates; today, the clarity of stablecoin regulation is providing support for their development.

J.P. Morgan predicts that by 2030, yield-generating stablecoins are expected to capture 50% of the stablecoin market, with their size growing from currently less than $10 billion to hundreds of billions of dollars.

Development History and Main Yield Generation Mechanisms of Yield-Generating Stablecoins

Historical Development Review

2017-2019: The Foundational Stage of Static Stablecoins

• Tether (USDT, 2014) and USD Coin (USDC, 2018) launched fiat-backed centralized stablecoins aimed at achieving price stability but lacked native yield capabilities.

• MakerDAO launched DAI in 2017, achieving a decentralized collateral mechanism, becoming an important pioneer in the field, but initially did not integrate yield functions, focusing on value anchoring and preservation.

2020-2022: DeFi Boom and Early Yield Exploration

• MakerDAO's DAI savings rate offered 3-8% annualized yield through over-collateralized lending, becoming the first case to achieve decentralized yield integration.

• Algorithmic models like TerraUSD (UST) attempted high-yield mechanisms but ultimately failed due to a lack of sustainability.

• Frax Finance launched a hybrid partial algorithmic model, aiming to enhance capital efficiency while avoiding the vulnerabilities exposed by purely algorithmic models (like UST).

2023: Institutional-Level Hybrid Strategies and New Entrants

• Ondo Finance launched RWA-backed stablecoin (USDY) collateralized by tokenized U.S. Treasury bonds, attracting institutional funds.

• Level Finance generated yield through low-risk lending activities on mature DeFi protocols like Aave.

• Aave launched GHO in July 2023, a decentralized, over-collateralized stablecoin.

2024: Mainstream Adoption and Rapid Growth

• Ethena officially launched its synthetic stablecoin USDe on the Ethereum mainnet in February 2024.

• BlackRock launched the BUIDL project, introducing a tokenized Treasury bond fund with a scale of $500 million and an annualized yield exceeding 5%, further validating the feasibility of the RWA collateral model.

• Usual's USD0 rapidly grew after its launch in June 2024.

• Resolv introduced a risk-layered yield treasury, allowing users to freely choose between conservative to leveraged (4.3%-15.2% APY) strategies.

2025: Diversification, Automation, and Regulatory Clarity

• Sky Protocol introduced AI-driven yield optimization strategies, with AI stablecoins and yield management becoming key focuses of the "DeFi + AI" trend in early 2025.

• In February 2025, YLDS became the first yield-generating stablecoin approved by the U.S. Securities and Exchange Commission, with an annual interest rate of 3.85%.

• Aave proposed the sGHO savings token plan, aiming to expand the application scenarios of GHO and create a low-risk yield-generating stablecoin, with yield sourced from the native yield of USDC on Aave V3.

• Regulatory clarity regarding stablecoins further emerged: in early 2025, the SEC approved the classification of yield-generating stablecoins as securities, while the introduction of the STABLE Act and GENIUS Act marked further clarification of the stablecoin regulatory framework.

Core Sources of Yield

Real-World Asset (RWA) Collateral

These stablecoins are supported by traditional financial assets (most commonly U.S. Treasury bonds) as collateral, generating yield through these assets. By March 2025, the market size of tokenized U.S. Treasury bonds had reached $5 billion, with related products offering annualized yields between 4.8% and 6.8%. Due to their good compliance attributes and widespread acceptance by institutional investors, this segment is continuously developing.

In this field, BlackRock's BUIDL leads with approximately $1.7 billion in assets under management, followed by Ondo Finance's USDY, Mountain Protocol's USDM, and Usual Money's USD0. Due to its high compatibility with the traditional financial system, the potential market space for this sector is enormous, expected to reach $3.5 trillion to $10 trillion by 2030.

Derivative Arbitrage

These stablecoins generate yield through low-risk derivative trading, typically relying on perpetual contracts for operations. For example, Ethena's sUSDe utilizes a Delta Neutral hedging strategy to exploit arbitrage opportunities in the perpetual contract market, achieving annualized yields of 10% to 27%, growing its market cap from $65 million to $3.5 billion within a year.

However, the growth potential of this sector has inherent limitations. Its yield relies on limited positions and fluctuating funding rates in the perpetual market, making it significantly less scalable than more robust yield sources like tokenized Treasury bonds. Additionally, the regulatory environment adds uncertainty to its prospects. Recent legislative movements, such as the Genius Act and Stable Act, have classified such products as "non-compliant" and are more inclined to support the regulated RWA tokenization path.

Therefore, while derivative arbitrage stablecoins may still serve as high-yield options for specific advanced user groups, their market space is far smaller compared to RWA-backed stablecoins. The latter aligns better with institutional standards and global regulatory directions, possessing trillions of dollars in growth potential.

DeFi Lending, Liquidity Mining, and Automated Yield Aggregation

These protocols generate yield 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 tens of billions of dollars, with lending strategies offering annualized yields of about 3-12%, while liquidity mining can reach 5-20%+. As of April 2025, the total TVL of DeFi lending and liquidity mining protocols was approximately $42.7 billion. However, the TVL of stablecoins generated through these mechanisms accounts for only a small portion of this, currently estimated at hundreds of millions to tens of billions of dollars.

This gap primarily arises from three reasons:

1. Most TVL comes from high-volatility assets (like BTC and ETH), rather than stablecoins;

2. Stablecoins are more commonly used for lending rather than depositing for yield;

3. Liquidity mining rewards are usually distributed in governance tokens rather than stablecoins themselves, decoupling TVL from the actual yield generated by stablecoins.

Thus, while these strategies provide some yield sources for stablecoins, their overall scale and sustainability remain significantly lower compared to RWA-backed or derivative arbitrage stablecoins.

Risk Management

Yield-generating stablecoins face a series of specific risks that need to be effectively mitigated through multidimensional means:

• Smart Contract Risk: Mitigated through third-party audits, bug bounty programs, and formal verification methods to reduce the impact of potential vulnerabilities.

• Regulatory Risk: Managed through proactive compliance, modular design, and obtaining relevant licenses.

• Liquidity Risk: Mitigated by relying on high-quality reserve assets, diversified asset portfolios, and sound redemption mechanisms.

• Yield Sustainability Risk: Ensured through diversified yield sources, hedging strategies, and reserve funds to maintain long-term stable returns.

• Collateral Risk: Managed through conservative loan-to-value ratios, quality collateral selection mechanisms, and efficient liquidation systems.

• Counterparty and Platform Risk: Controlled through due diligence, security audits, and transparent information disclosure mechanisms.

Innovation Frontiers

We believe that this field still has significant innovation potential in two key dimensions: the continuous evolution of infrastructure and the diversification of yield sources.

Infrastructure Innovation: Plasma

Plasma is a new public chain supported by Tether, specifically designed for stablecoins, marking a significant leap in the infrastructure for yield-generating stablecoins. Plasma combines Bitcoin-level security, zero-fee USDT transfers, and full EVM compatibility, laying a strong foundation for the next phase of innovation in yield-generating stablecoin products, with the potential to spawn a new category of yield generation models.

The current stablecoin ecosystem is built on general infrastructure that has not been optimized for its characteristics, which somewhat limits the innovation of yield models. Existing public chains typically treat stablecoins as indistinguishable from other tokens, neither optimizing their trading characteristics nor supporting more complex yield logic. Users must manually deploy strategies through lending platforms or liquidity pools, resulting in cumbersome processes, high fees, and complex management, with frequent strategy switches and transaction monitoring continually eroding final yields, hindering widespread adoption.

Plasma addresses these pain points with specialized architectural design, including:

• Zero-Fee USDT: The most transformative innovation of Plasma is its zero-fee transfer feature for USDT achieved through a delay-based prioritization mechanism. By eliminating transaction costs, previously unfeasible micro-yield models can be realized, such as frequent automatic rebalancing and hourly yield distribution.

• Flexible Transaction Cost System: Plasma offers a customizable Gas Token feature, allowing users to pay fees using USDT or other assets without relying on a dedicated token. This significantly simplifies the operational process, as users do not need to manage fee assets separately, providing a foundation for complex, automated, and frequently traded yield strategies.

• Bitcoin-Level Security Anchoring: Plasma periodically anchors state data to the Bitcoin blockchain, achieving permissionless finality, enhanced censorship resistance, and globally verifiable trust sources. This strong security design is crucial for promoting institutional participation in complex yield products.

• EVM Compatibility and Innovation Space: Plasma's native compatibility with the Ethereum Virtual Machine allows existing DeFi protocols and yield mechanisms to migrate directly, accelerating ecosystem development. At the same time, this compatibility opens up space for native innovations, such as:

• Programmable Stablecoins: Automatically allocating funds to optimal yield strategies based on market conditions;

• Time-Locked Stablecoins: Offering higher yields in exchange for longer lock-up periods;

• New Yield Distribution and Rebalancing Mechanisms: Models that are not feasible on high-fee chains will become possible.

In summary, Plasma is a blockchain environment tailored to the characteristics of stablecoins and the demand for yield generation. By removing fee friction, simplifying transaction execution, enhancing security, and opening up deep customization capabilities, Plasma has the potential to completely reshape the design paradigm and application boundaries of yield-generating stablecoins.

Diversification of Yield Sources

On-Chain Yield Source Case: Unitas

Unitas is a decentralized multi-chain payment protocol, with its core product being USDu, a yield-generating stablecoin based on neutral hedging strategies. A key component of this ecosystem is the liquidity provider token JLP from the Jupiter perpetual contract platform, which represents the user's share of liquidity provided on the Jupiter platform.

How JLP Generates Yield

• Revenue Sharing: JLP holders can earn approximately 75% of the trading fee revenue from the Jupiter perpetual contract platform, including leveraged trading and exchange fees.

• Fee Reinvestment Mechanism: Revenue is not directly distributed in stablecoin form but is automatically reinvested back into the JLP pool, thereby increasing the virtual price of JLP tokens and achieving compound growth.

• Market Exposure: JLP tokens correspond to a basket of assets, including SOL, ETH, BTC, USDC, and USDT, with holders bearing the risks and rewards of price fluctuations of these assets.

• Yield Range: Annualized yields fluctuate weekly based on platform trading volume and market volatility, historically achieving high double-digit returns during periods of active trading and high volatility.

• Hedging Relationship Between Trader Profits and Pool Losses: When traders profit, their gains come from the liquidity pool, meaning JLP holders may face declining yields or even principal losses.

Core Innovations of Unitas

• Unitas integrates multiple yield sources, including trading fee revenue from the perpetual contract trading platform, staking rewards, funding rate arbitrage, and efficient collateral management to achieve optimized yield performance.

• Its core stablecoin USDu deploys neutral hedging strategies across multiple assets (such as staked SOL, ETH, and BTC) to achieve yield generation while maintaining price stability.

• A dynamic multi-asset collateral mechanism further enhances its anchoring stability and transparency, reducing risks from price volatility.

• Unitas also integrates with real-world payment systems through the Unitas Card, allowing users to conveniently spend crypto-asset-backed credit lines.

• The protocol exhibits good cross-ecosystem interoperability between centralized finance and decentralized finance, providing liquidity and practical application scenarios for both institutional and individual users.

Unlike traditional underlying staking yield models, Unitas adopts a hybrid yield extraction strategy, relying on the two core mechanisms of the Jupiter perpetual contract platform: (1) accumulation of trading fees; (2) funding rate arbitrage opportunities.

Since JLP is a passive asset basket, its asset composition continuously adjusts with market flows and trader profits and losses, requiring more complex neutral hedging management, making it far more challenging than static single-asset collateral models.

Unitas strategically positions itself as a multifunctional crypto-financial ecosystem integrating yield, payments, and credit, unlocking pathways between on-chain yield and real-world financial applications.

Moreover, this model also reveals broader potential directions: future protocols could support new yield-generating stablecoins by unlocking more underutilized on-chain income sources (such as DEX fees, NFT royalties, etc.), achieving a deep integration of DeFi innovation and scalable financial infrastructure.

Off-Chain Yield Sources as Potential Innovation 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 reserve system of stablecoins to generate yield through interest income from off-chain loans. For example, the stablecoin YLDS launched by Figure Markets uses collateral that includes securities similar to those held by high-quality money market funds, including private assets like ABS. This collateral structure differs from most traditional stablecoins that primarily rely on U.S. Treasury bonds or fiat reserves, allowing access to higher-yield but traditionally hard-to-access credit markets.

GPU Mining or Computing Resource Income

Tokenizing income from GPU mining farms or decentralized computing networks as collateral for stablecoin yield sources. This approach can convert operational income generated from off-chain, hardware-intensive businesses into on-chain yield. For example, GAIB tokenizes ownership of GPUs like NVIDIA H100, H200, GB200 and their future computing resource income, issuing tradable yield certificates; USD.ai similarly focuses on tokenizing AI infrastructure (such as computing resources) for stablecoin yield generation. Although no protocol currently directly uses such computing income as yield support for stablecoins, the above projects validate the feasibility of tokenizing off-chain computing infrastructure income.

Insurance Premiums and Underwriting Income

Using income generated from underwriting activities in decentralized or traditional insurance as a yield source for stablecoins. Stablecoins could be backed by asset pools that earn premium income, distributing that income to holders. This model connects the cash flow of insurance with stablecoin yields, expanding their yield sources beyond just financial markets. Although no protocol has yet fully issued stablecoins backed 1:1 by insurance premiums, designs like BakUp's RLP model and Resolv's layered yield structure have begun to demonstrate how insurance income can complement traditional collateral (like Treasury bonds or staked ETH).

These innovative paths are driving the yield-generating stablecoin model from a singular on-chain DeFi strategy to a broader range of real-world income streams and synthetic collateral methods, enhancing their stability, scalability, and regulatory friendliness.

Conclusion: Seeking Balance Between Innovation and Stability

Yield-generating stablecoins represent a significant evolution in the digital finance space, combining the stability of traditional assets with the efficiency of DeFi protocols. Over the past two years, this sector has achieved a 13-fold growth and garnered support from large institutions like BlackRock, demonstrating strong momentum for continued expansion. The key to achieving sustainable growth lies in balancing yield optimization with regulatory compliance. In the future, protocols that can effectively integrate institutional-grade custody mechanisms with DeFi-native innovations may lead the evolution of the next phase of financial infrastructure. As the market matures, yield-generating stablecoins are transforming from experimental products into foundational components of the global financial system, providing users with stability while meeting their yield demands.