How to Earn Passive Crypto Income with Stablecoins in 2025

Key takeaways

• Yield-bearing stablecoins include treasury-backed, DeFi and synthetic models.

• US and EU law ban issuer-paid interest; access is often restricted.

• Rebases and rewards are taxed as income when received.

• Risks remain: regulation, markets, contracts and liquidity.

The search for passive income has always driven investors toward assets like dividend stocks, real estate or government bonds.

In 2025, crypto adds another contender: yield-bearing stablecoins. These digital tokens are designed not just to hold their value against the dollar but also to generate a steady income while sitting in your wallet.

But before rushing in, it’s important to understand what these stablecoins are, how the yield is produced and the legal and tax rules that apply.

Let’s break it down step-by-step.

What are yield-bearing stablecoins?

Traditional stablecoins such as Tether’s USDt (USDT) or USDC (USDC) are pegged to the dollar but don’t pay you anything for holding them. Yield-bearing stablecoins are different: They automatically pass on returns from underlying assets or strategies to tokenholders.

There are three major models in use today:

1. Tokenized treasuries and money market funds: These stablecoins are backed by safe assets like short-term US Treasurys or bank deposits. The yield from those holdings is distributed back to the tokenholders, often by increasing the token balance or adjusting its value. Put simply, you could think of them as blockchain-wrapped versions of traditional cash-equivalent funds.

2. Decentralized finance (DeFi) savings wrappers: Protocols like Sky (previously MakerDAO) allow users to lock stablecoins, such as Dai (DAI), into a “savings rate” module. When wrapped into tokens like sDAI, your balance grows over time at a rate set by the protocol’s governance.

3. Synthetic yield models: Some innovative stablecoins, such as those powered by derivatives strategies, generate yield from crypto market funding rates or staking rewards. Returns can be higher but also fluctuate depending on market conditions.

Can you earn passive income with yield-bearing stablecoins?

The short answer is yes, though the details may vary by product. Here’s the typical journey:

1. Choose your stablecoin type

• If you want lower risk and traditional backing, look at tokenized treasury-backed coins or money-market fund tokens.

• If you are comfortable with DeFi risk, consider sDAI or similar savings wrappers.

• For higher potential yield (with higher volatility), synthetic stablecoins like sUSDe may fit.

2. Buy or mint the stablecoin

Most of these tokens can be acquired either on centralized exchanges — with Know Your Customer (KYC) requirements — or directly through a protocol’s website. 

However, some issuers restrict access by geography. For example, many US retail users cannot buy tokenized treasury coins due to securities laws (because they are treated as securities and limited to qualified or offshore investors).

Also, stablecoin minting is usually restricted. To mint, you deposit dollars with the issuer, who creates new stablecoins. But this option is not open to everyone; many issuers limit minting to banks, payment firms or qualified investors.

For example, Circle (issuer of USDC) allows only approved institutional partners to mint directly. Retail users can’t send dollars to Circle; they must buy USDC already in circulation.

3. Hold or stake in your wallet

Once purchased, simply holding these stablecoins in your wallet may be enough to earn yield. Some use rebasing (your balance increases daily), while others use wrapped tokens that grow in value over time.

4. Use in DeFi for extra earnings

In addition to the built-in yield, some holders utilize these tokens in lending protocols, liquidity pools or structured vaults to generate additional income streams. This adds complexity and risk, so proceed carefully.

5. Track and record your income

Even though the tokens grow automatically, tax rules in most countries treat those increases as taxable income at the time they are credited. Keep precise records of when and how much yield you received.

Did you know? Some yield-bearing stablecoins distribute returns through token appreciation instead of extra tokens, meaning your balance stays the same, but each token becomes redeemable for more underlying assets over time. This subtle difference can affect how taxes are calculated in some jurisdictions.

Examples of yield-bearing stablecoins 

Not every product that looks like a yield-bearing stablecoin actually is one. Some are true stablecoins, others are synthetic dollars, and some are tokenized securities. Let’s understand how they break down:

True yield-bearing stablecoins

These are pegged to the US dollar, backed by reserves and designed to deliver yield.

• USDY (Ondo Finance): It is a tokenized note backed by short-term treasuries and bank deposits, available only to non-US users with full KYC and Anti-Money Laundering (AML) checks. Transfers into or within the US are restricted. USDY acts like a rebasing instrument that reflects Treasury yields.

• sDAI (Sky): sDAI is a wrapper around DAI deposited in the Dai Savings Rate. Your balance grows at a variable rate decided by Maker governance. It’s widely integrated in DeFi but relies on smart contracts and protocol decisions — not insured deposits.

Synthetic stablecoins

These mimic stablecoins but use derivatives or other mechanisms rather than direct reserves.

• sUSDe (Ethena): A “synthetic dollar” stabilized by long spot crypto plus short perpetual futures. Holders of sUSDe earn returns from funding rates and staking rewards. Returns can compress quickly, and risks include market swings and exchange exposure.

Tokenized cash equivalents

These are not stablecoins but are often used in DeFi as “onchain cash.”

• Tokenized money market funds (e.g., BlackRock’s BUIDL): Not strictly a stablecoin, but tokenized shares in money market funds. They pay dividends monthly in the form of new tokens. Access is limited to qualified investors and institutions, making them popular with DeFi protocols but generally out of reach for retail users.

The 2025 stablecoin rulebook you should know

Regulation is now central to whether you can hold certain yield-bearing stablecoins.

United States (GENIUS Act)

• In 2025, the US passed the GENIUS Act, its first federal stablecoin law. A key provision is the ban on issuers of payment stablecoins paying interest or yield directly to holders.

• This means tokens like USDC or PayPal USD (PYUSD) cannot reward you simply for holding them.

• The goal is to stop stablecoins from competing with banks or becoming unregistered securities.

• As a result, US retail investors cannot legally receive passive yield from mainstream stablecoins. Any yield-bearing versions are typically structured as securities and restricted to qualified investors or offered offshore to non-US users.

European Union (MiCA)

Under the Markets in Crypto-Assets (MiCA) framework, issuers of e-money tokens (EMTs) are also forbidden from paying interest. The EU treats stablecoins strictly as digital payment instruments, not savings vehicles.

United Kingdom (ongoing rules)

The UK is finalizing its own stablecoin regime, focusing on issuance and custody. While not yet an explicit ban, the policy direction matches the US and EU: Stablecoins should serve payments, not yield.

The clear message: Always check if you’re legally allowed to buy and hold a yield-bearing stablecoin where you live.

Tax considerations for yield-bearing stablecoins

Tax treatment is just as important as choosing the right coin.

• In the US, staking-style rewards, including rebases, are taxed as ordinary income when received, regardless of whether they are sold. If you later dispose of those tokens at a different value, that triggers capital gains tax. On top of that, 2025 has brought new reporting rules that make it mandatory for crypto exchanges to issue Form 1099-DA, and taxpayers must track cost basis per wallet, making accurate record-keeping more critical than ever.

• In the EU and globally, new reporting rules (DAC8, CARF) mean crypto platforms will automatically report your transactions to tax authorities from 2026 onward.

• In the UK, HMRC guidance classifies many DeFi returns as income, with disposals of tokens also subject to capital gains tax.

Risks to keep in mind if you are considering yield on your stablecoins

While yield-bearing stablecoins sound attractive, they’re not risk-free:

• Regulatory risk: Laws can change quickly, shutting off access or winding down products.

• Market risk: For synthetic models, yield depends on volatile crypto markets and can disappear overnight.

• Operational risk: Smart contracts, custody arrangements and governance decisions can all affect your holdings.

• Liquidity risk: Some stablecoins restrict redemptions to certain investors or impose lock-ups.

So, while chasing yield on stablecoins can be rewarding, it’s not the same as parking cash in a bank account. Each model, whether Treasury-backed, DeFi-native or synthetic, carries its own trade-offs.

The smartest approach is to size positions cautiously, diversify across issuers and strategies and always keep an eye on regulation and redemptions. The best way to go about this is to treat stablecoin yields like an investment product, not risk-free savings.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.