What is a Yield-bearing Stablecoin?
Quick Definition
A yield-bearing stablecoin is a stablecoin that generates a return for its holders, typically derived from the performance of its underlying reserve assets.
Full Definition
Most traditional stablecoins are passive: they hold their value steady but generate no return for holders. The issuer typically keeps the income earned from the underlying reserves. Holders get stability, but their capital sits idle. Yield-bearing stablecoins change this dynamic by passing some of that performance through to the holders themselves.
This category has grown rapidly in recent years. Holding a passive stablecoin means leaving real money on the table, which is why yield-bearing models have attracted significant institutional interest.
How yield-bearing stablecoins work
Different protocols deliver yield to holders through different mechanisms:
- Direct payments: periodic transfers of tokens or stablecoins to holders' wallets, similar to interest deposits.
- Accrual models: the token's exchange rate against its underlying asset increases over time, so the same number of tokens becomes worth more.
- Reward tokens: a separate token is issued to represent the yield, which can be claimed or traded.
- Staking-based models: holders must lock or stake their tokens to qualify for the yield.
- Steady's rebase mechanism: automatic growth of the token supply, where each holder's balance increases proportionally over time to reflect the performance of our underlying assets.
The underlying source of the yield also varies, from government bonds and money market instruments to DeFi lending pools or crypto staking strategies. Each source comes with its own risk profile and reliability.
The key questions to ask about any yield-bearing stablecoin are: What is the underlying source of return? How is it delivered to holders? What are the associated risks? And is the structure regulated and transparent?
In the case of Steady, while we do not make direct yield payments, holders still benefit from the performance of our underlying assets. Up to 95% of that performance is reflected through the rebase mechanism, which grows each holder's position directly in their wallet. No staking, claiming, or locking is required. If you want to check the current Steady's APY, you can do so by visiting our Transparency Portal.
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.
Rebase
ReadA rebase is an automatic adjustment to the total supply of a token, where every holder's balance changes proportionally to reflect a new total supply.
Staking
ReadStaking is the process of locking up tokens in a blockchain protocol to support its operation or earn rewards.
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.
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.
LearnMoreAboutSteady
Transparency Portal
reserves, statements, audits, smart contract, and more.
FAQs
Discover the basics about Steady in our frequently asked questions.
Contact Us
questions, feel free to get in touch. We'll be happy to help.
