What is a Yield?
Quick Definition
Yield refers to the income or return generated from an asset over time, usually expressed as a percentage of the asset's value.
Full Definition
In traditional finance, yield can take many forms: interest from bonds, dividends from stocks, rental income from real estate, or returns from money market instruments. It represents the compensation earned for allocating capital to an asset or strategy. Different assets generate yield in different ways, and the level of yield is often linked to the level of risk involved. Higher yields may indicate higher potential returns, but they can also come with greater risk.
Yield in the crypto world
In the crypto space, the term "yield" is used broadly and often inconsistently. It can refer to many different sources of return, including staking rewards, lending returns, liquidity pool fees, or returns generated by underlying real-world assets. Because the same term can describe very different mechanisms, it is important to understand where a yield comes from. A 5% yield generated by short-term government bonds is fundamentally different from a 5% yield generated by a high-risk DeFi strategy, even if the headline number looks the same.
Most stablecoins do not offer any yield directly. Their business models rely on generating income from users' funds. In the case of Steady, we strongly believe that if it is your money, it should work for you, not for us. Our underlying reserve assets, short-term U.S. Treasury Bills, generate yield in the traditional financial sense. Up to 95% of this yield is then shared back with Steady holders through the rebase mechanism, which automatically grows each holder's position to reflect the performance of these underlying assets. This is not a yield payment or distribution in the traditional sense, as there is no direct payment transaction. Instead, the growth is built directly into the token itself. This allows holders to benefit from the yield generated by the underlying Treasury Bills without needing to take any additional action.
Related Terms
APY
ReadAPY, or Annual Percentage Yield, is the standardized rate of return an asset generates over a year, including the effect of compounding.
Off-chain Yield
ReadOff-chain yield refers to returns generated from assets managed outside the blockchain (typically traditional financial instruments) that accrue to whoever holds those underlying assets.
Position
ReadA position refers to the amount of a particular asset that an investor or holder currently owns.
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-bearing Stablecoin
ReadA yield-bearing stablecoin is a stablecoin that generates a return for its holders, typically derived from the performance of its underlying reserve assets.
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.
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.
Counterparty Exposure
ReadCounterparty exposure refers to the risk that another party, such as a bank, custodian, broker, or service provider fails to fulfill its obligations, potentially affecting the assets or funds it holds.
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