Ways to generate passive income from yield-bearing stablecoins in 2025

Key Takeaway

• The emerging yield-bearing stubcoins feature models from decentralized finance and synthetic assets, with backing from the Ministry of Finance.

• Profits from US and EU prohibited issuer payments are often off-limits for many.

• Income from rebase and rewards is taxed upon receipt.

• There are risks involved, such as regulatory changes, market conditions, contract issues, and liquidity challenges.

Investors seeking passive income generally look at traditional assets like dividend stocks, real estate, and government bonds.

By 2025, stablecoins that generate yields will join the fray, offering digital tokens that not only maintain value against the dollar but also provide reliable income in your wallet.

However, before diving in, it’s crucial to grasp what these stablecoins are, how they yield returns, and the related legal and tax implications.

Let’s break it down step by step.

What are Yield-Bearing Stubcoins?

Unlike conventional stablecoins like Tether’s USDT and USDC, which are dollar-pegged but yield nothing, these new varieties distribute earnings to holders through their underlying assets or strategies.

Presently, there are three main models being utilized.

1. Tokenized Treasury and Money Market Funds: These stablecoins are anchored by safe assets like short-term US Treasury securities and bank deposits. Yields from these assets are passed on to token holders by either increasing their token balance or modifying their value. Essentially, think of them as blockchain-enabled versions of traditional cash equivalent funds.

2. Decentralized Finance (DeFi) Savings Wrapper: Platforms like Sky, formerly known as Makerdao, allow users to lock up stablecoins like Dai in a “Saving Rate” module. The wrapped tokens, such as SDAI, grow over time based on the governance-set rate.

3. Synthetic Yield Model: Innovative stubcoins using derivatives or similar strategies extract yields from crypto market funding rates or staking rewards. While the potential revenues can be significant, they are subject to market fluctuations.

Can You Earn Passive Income from Stubcoins?

While the specifics can differ by product, the straightforward answer is yes. Here’s the typical process:

1. Choose the Type of Stablecoin

• For lower risk with traditional backing, consider tokenized Treasury-backed coins or money market fund tokens.

• If you’re okay with DeFi risks, look into SDAI or similar savings wrappers.

• For potentially higher yields (with more volatility), synthetic stablecoins like Susde may be appealing.

2. Acquire or Mint Stablecoins

Most of these tokens can be bought on centralized exchanges following KYC protocols or directly from the protocol’s website.

However, geographic restrictions might apply. For instance, many US users can’t purchase tokenized Treasury coins due to securities laws treating them as securities, limiting access to qualified investors.

Also, minting stablecoins often has restrictions. Typically, it involves depositing dollars with the issuer to create new stablecoins, which may not be available to everyone. Many issuers, like Circle (the issuer of USDC), only allow approved institutional partners to mint directly.

3. Hold or Stake in Your Wallet

After acquiring, simply keeping these tokens in your wallet might suffice to earn yields. Some see rebase (with daily balance increases), while others may benefit from wrapped tokens that appreciate over time.

4. Utilize DeFi for Extra Income

Beyond built-in yields, some holders leverage tokens in lending protocols, liquidity pools, or structured vaults for additional revenue streams. This adds a layer of complexity and risk, so it’s wise to proceed thoughtfully.

5. Monitor and Document Your Income

While tokens increase automatically, most tax regulations consider this growth taxable income once credited. Keeping a record of when and how much you earned is essential.

Did you know? Yield-bearing stubcoins distribute returns via token valuations rather than additional tokens, meaning your token count stays the same, but each becomes increasingly redeemable for more value over time. This subtlety can influence tax calculations in various jurisdictions.

Examples of Yield-Bearing Stability

Not every product that resembles a yield-bearing stablecoin actually qualifies. Some are straightforward stablecoins, while others are synthetic or tokenized securities. Here’s a breakdown:

Stubcoins with True Yield

These stablecoins are dollar-pegged, backed by reserves, and designed to generate yields.

• USDY (Ondo Finance): This tokenized note is backed by short-term Treasury and bank deposits, available only to non-US users who meet full KYC and AML checks. Transfers to or within the US are restricted. USDY operates as a reflection of Treasury yield.

• SDAI: SDAI serves as a DAI wrapper deposited into DAI’s savings rate. The balance grows at a variable rate determined by governance decisions. Widely used in DeFi, it’s reliant on smart contracts and protocol decisions, lacking insured deposits.

Synthetic Stability

These mimicry stubcoins utilize derivatives or other mechanisms rather than direct reserves.

• Susde (Ethena): These “Synthetic Dollars” maintain stability through a combination of long and short positions. Susde holders can benefit from staking rewards, although returns can quickly diminish, and risks from market volatility are present.

Tokenized Cash Equivalents

While not technically stubcoins, they often serve as on-chain equivalents within DeFi.

• Tokenized Money Market Funds (e.g., BlackRock’s Buidl): Not strictly a stubcoin, but these represent tokenized shares of money market fund stocks. They provide monthly dividends in the form of new tokens and are typically accessible only to qualified investors, making them less available to retail users.

2025 Stablecoin Regulations to Know

Regulatory frameworks are now critical for stablecoins that offer specific yield capabilities.

United States (Genius Law)

• In 2025, the US enacted the Genius Act—the first federal law addressing this. A key rule prohibits issuers from providing interest or direct payments to holders.

• This implies tokens like USDC and PayPal USD (PYUSD) can’t reward holders merely for holding them.

• The intention is to prevent stubcoins from competing with banks or being classified as unregistered securities.

• Thus, US retail investors are unable to legally receive passive yields from conventional stubcoins. Typically, yield-bearing versions are treated as securities, only available to qualified investors or non-US users.

European Union (MICA)

The EU’s MiCA regulations also prevent electronic money token issuers from offering interest, viewing stablecoins strictly as digital payment forms rather than investment vehicles.

United Kingdom (Ongoing Rules)

The UK is currently finalizing its own set of regulations for stubcoins, emphasizing issuance and custody. Although there isn’t a strict ban yet, the direction mirrors the US and EU approaches, insisting stablecoins are primarily for transactions rather than yields.

The clear message is to always verify if purchasing and holding yield-bearing stubcoins is permissible in your region.

Tax Implications for Yield Stablecoins

Tax considerations are as crucial as choosing the right coin.

• In the US, rewards from staking, including rebase, are considered taxable income upon receipt, regardless of whether they’re sold later. Selling those tokens at a different value incurs capital gains tax. Starting in 2025, new reporting rules will require crypto exchanges to issue Form 1099-DA, necessitating taxpayers to keep meticulous records of their cost basis per wallet.

• In the EU and globally, the upcoming reporting regulations (DAC8, CARF) will entail automatic transaction reporting to tax authorities beginning in 2026.

• In the UK, HMRC guidelines classify many DeFi returns as taxable income, with token sales also subject to capital gains tax.

Risks to Consider When Exploring Yields in Stablecoins

A stablecoin with yield may sound enticing, but it comes with its share of risks.

• Regulatory Risk: Regulations can change rapidly, potentially cutting access or rendering products untenable.

• Market Risk: For synthetic models, yields hinge on a volatile cryptocurrency market, which can vanish suddenly.

• Operational Risk: Issues related to smart contracts, custody arrangements, and governance decisions can impact your holdings.

• Liquidity Risk: Some stubcoins may restrict redemptions to specific investors or impose lock-up periods.

While pursuing yields on stubcoins may offer rewards, it’s not equivalent to parking cash in a bank. Each model brings distinct trade-offs, whether they’re traditional or synthetic, all supported by the Ministry of Finance.

The most prudent strategy is to carefully assess your investment size, diversify across different issuers and strategies, and stay informed about regulations and redemption policies. Treating the yield from stubcoins more like an investment than a risk-free savings account is advisable.