What is a Off-chain Yield?
Quick Definition
Off-chain yield refers to returns generated from assets managed outside the blockchain (typically traditional financial instruments) that accrue to whoever holds those underlying assets.
Full Definition
Off-chain yield is one of the most important concepts in the stablecoin world. The mechanics are simple: a stablecoin issuer holds backing assets off-chain (typically things like government bonds, money market instruments, or bank deposits), and those assets generate returns in the traditional financial system. Government bonds pay interest. Bank deposits earn yield. Money market instruments produce income.
Off-chain yield vs. on-chain yield
Off-chain yield differs meaningfully from on-chain yield (like lending returns or liquidity pool fees). Off-chain yield typically comes from traditional financial instruments with well-understood risk profiles, regulatory frameworks, and counterparty structures. On-chain yield comes from DeFi protocols with smart contract risk, protocol-specific dynamics, and often higher but more volatile returns. The two aren't mutually exclusive, but they have very different risk and reliability profiles.
How Steady uses off-chain yield
Steady's rebase mechanism is driven entirely by off-chain yield. Our reserve assets (T-Bills) generate returns in the traditional financial system. The performance of those assets is then reflected on-chain through the rebase, which grows each holder's position proportionally tracking the performance of the T-Bills. This structure combines the transparency of blockchain with the stability and reliability of government debt markets, bringing real, low-risk off-chain yield into the on-chain world.
Related Terms
Off-chain
ReadOff-chain refers to processes, assets, or transactions that happen outside of a blockchain, typically within traditional financial or operational infrastructure.
Treasury Bills (T-Bills)
ReadTreasury Bills (T-Bills) are short-term debt instruments issued by the US government, typically maturing in one year or less.
Yield
ReadYield refers to the income or return generated from an asset over time, usually expressed as a percentage of the asset's value.
Other Glossary Items
Learn about common and essential terms related to Steady and other stablecoin protocols.
Algorithmic Stablecoin
ReadAn algorithmic stablecoin attempts to maintain its value through automated rules that adjust token supply based on market demand, rather than holding equivalent reserve assets.
AML
ReadAML (Anti-Money Laundering) refers to the laws, regulations, and procedures designed to prevent the use of financial systems for laundering the proceeds of crime.
APY
ReadAPY, or Annual Percentage Yield, is the standardized rate of return an asset generates over a year, including the effect of compounding.
Arbitrum
ReadArbitrum is a Layer 2 blockchain network built on top of Ethereum, designed to offer faster and cheaper transactions while inheriting Ethereum's security and infrastructure.
Asset Backing
ReadAsset backing refers to the real-world or on-chain assets held by the issuer to support the value of every token in circulation.
Asset Locking
ReadAsset locking refers to restricting access to funds for a defined period or condition, during which they cannot be transferred or used.
Asset Segregation
ReadAsset segregation is the practice of keeping client or backing assets separate from the issuer's operational funds, protecting them from the issuer's other obligations.
Audit
ReadAn audit is an independent examination of a protocol's code, reserves, or operations by qualified third parties to verify accuracy and compliance with stated claims.
Backing
ReadBacking refers to the assets or mechanisms that support a stablecoin's value and help it maintain its intended reference value.
Blockchain Network
ReadA blockchain network is the system of connected participants and infrastructure that validates, records, and maintains data on a specific blockchain.
Blockchain
ReadA blockchain is a distributed digital ledger that records transactions across a network of computers in a secure, transparent, and tamper-resistant way.
Bridge
ReadA bridge is a mechanism that enables the transfer of assets or data between different blockchain networks.
Clarity Act
ReadThe Clarity Act is a proposed US legislative framework intended to clarify the regulatory treatment of digital assets, defining when they should be treated as securities versus commodities.
Collateralization / Over-collateralization
ReadCollateralization refers to the ratio between the value of assets held in reserve and the value of tokens issued. Over-collateralization means holding more in reserves than the value of tokens issued.
Composability
ReadComposability refers to the ability of different protocols, contracts, and tokens on a blockchain to interact and combine with each other seamlessly.
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