How to Earn Passive Income with Yield-Bearing Stablecoins in 2025 — Without Breaking the Rules

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The search for passive income has always driven investors toward dividend stocks, real estate, or government bonds. In 2025, crypto introduces a new contender — yield-bearing stablecoins, tokens that not only maintain a 1:1 peg to the U.S. dollar but also generate a steady on-chain return.

However, this innovation comes with strings attached: complex regulations, tax implications, and real market risks. Before treating them like digital savings accounts, investors must understand how they work — and where the legal lines are drawn.

What Are Yield-Bearing Stablecoins?

Traditional stablecoins like USDT and USDC maintain a fixed value but don’t generate income. Yield-bearing stablecoins take this further by passing yield from underlying assets or strategies directly to tokenholders.

There are three main categories:

1. Treasury-Backed Stablecoins — Tokens like USDY (Ondo Finance) represent claims on short-term Treasurys and bank deposits. The yield from these assets is distributed through rebasing or rising token value. Think of them as blockchain-wrapped money market funds.
2. DeFi Savings Wrappers — Protocols like Sky issue tokens such as sUSDS, which earn yield through decentralized lending or governance-set rates. Your balance grows automatically as the protocol accrues revenue.
3. Synthetic Yield Models — Examples like sUSDe (Ethena) use derivatives or staking rewards to create yield. While they can offer higher returns, these models rely on volatile market conditions and carry more risk.

Can You Earn Passive Income with Them?

Yes — but it depends on what you buy, where you live, and how the yield is generated.

Here’s how most investors approach it:

1. Choose the Model:
   • Conservative investors favor Treasury-backed coins.
   • DeFi enthusiasts try protocol-based wrappers.
   • Risk-takers explore synthetic yield coins linked to crypto markets.
2. Buy or Mint the Token:
   Access varies. Some are available on centralized exchanges with KYC, while others require protocol-level interaction. Many issuers, like Ondo Finance, restrict access to non-U.S. investors due to securities laws.
3. Hold or Stake:
   Simply holding yield-bearing tokens in your wallet can generate returns via rebasing or appreciation. Some investors also deploy them in DeFi for extra yield — but that multiplies both returns and risks.
4. Track Income for Taxes:
   Even though yield accrues automatically, most tax authorities treat those gains as income at the moment received, requiring precise record-keeping.

Regulation: The 2025 Rulebook

Regulators worldwide are drawing a sharp line between payment stablecoins and yield-bearing instruments.

United States — The GENIUS Act

The U.S. GENIUS Act (2025) prohibits stablecoin issuers from paying interest or yield directly to holders. That means mainstream tokens like USDC or PYUSD can’t legally offer on-chain returns.
Any yield-bearing versions are treated as securities, limited to qualified or offshore investors.

European Union — MiCA Framework

Under MiCA, stablecoins classified as e-money tokens (EMTs) cannot pay interest. They must function purely as payment tools.

United Kingdom — Alignment Underway

The U.K. is finalizing its own stablecoin framework, expected to align closely with U.S. and EU policies — prioritizing payments over savings features.

In short: if you’re in the U.S. or EU, earning yield from stablecoins directly may be restricted or illegal. Offshore or DeFi-native solutions often bypass this, but that introduces higher legal and custody risks.

Tax Rules: What You Must Know

In 2025, crypto taxation has tightened globally.

• U.S. taxpayers must report staking-style or rebasing income when it occurs. Each increase in balance or token value counts as ordinary income, even before selling.
• The new Form 1099-DA requires exchanges to report crypto gains to the IRS, while users must track cost basis by wallet.
• EU & U.K. rules (DAC8, CARF) now require crypto platforms to automatically share user data with tax authorities starting 2026.

Accurate record-keeping — including timestamps and value changes — is now essential for yield-bearing tokens.

Risks to Keep in Mind

Yield-bearing stablecoins aren’t “risk-free.” They combine the stability of fiat-backed coins with the complexity of financial instruments.

1. Regulatory Risk: Sudden legal shifts can restrict redemptions or freeze access.
2. Market Risk: Synthetic models rely on derivatives and funding rates that can collapse overnight.
3. Smart Contract Risk: Bugs or governance failures in DeFi protocols can wipe out funds.
4. Liquidity Risk: Some stablecoins restrict withdrawals or redemptions to approved investors only.

Each token’s structure determines its risk profile. Always review the whitepaper, audit reports, and jurisdictional restrictions before committing capital.

Examples Worth Knowing

• USDY (Ondo Finance): Tokenized note backed by Treasurys and bank deposits; available to non-U.S. users only.
• sUSDS (Sky): DeFi-native token tied to the Sky Savings Rate, with yield controlled by community governance.
• sUSDe (Ethena): Synthetic stablecoin combining long spot and short futures; yield depends on funding rates.
• BUIDL (BlackRock): Tokenized money market fund shares — institutional-only, but increasingly integrated into DeFi.

Each represents a different intersection of regulation, risk, and reward.

The Bottom Line

Yield-bearing stablecoins are redefining what it means to “earn interest” on-chain. They blend traditional finance with crypto innovation — but investors must treat them as investments, not digital cash.

Before buying:

• Know your jurisdiction’s rules.
• Keep meticulous tax records.
• Diversify across issuers and mechanisms.
• Size positions prudently.

In short, yield-bearing stablecoins can offer steady on-chain income — but only if you play by the rules.

Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.