Digital cash faces some of the same constraints as physical cash, but for very different reasons.
Capital always wants a yield, and it tends to flow to the places where risk-adjusted yields are the most favorable. In a world where a safe U.S. Treasury bill can pay north of 4% per year, parking dollars in a stablecoin that never pays out a dime is a hard sell. In a nutshell, stablecoins solve the need for digital cash with speed and portability across borders, but not the need for a cash flow, and that mismatch is slowing their next leg of adoption.
Today’s roadblock is mostly legal in nature, at least in the U.S. But it could be resolved soon, as it has been in other jurisdictions — and there are already a handful of workarounds. Let’s take a look at the state of play so you will know what to look for and what to avoid.
Cash-equivalent assets, like Treasuries, have both a face value and a coupon payment. But stablecoins certainly aren’t a type of bond; you don’t expect the physical $1 bill in your wallet to earn interest, and the same principle applies here.
Nevertheless, the fact that stablecoins live on blockchains like Ethereum (ETH) and Solana (SOL) makes the lack of yield a bit confusing. After all, you can easily interchange nearly all major stablecoins for Ether or Solana, and, when you have those assets in hand, you can stake them to generate an annual return.
Staking on Solana currently has an average yield of 6.6%, whereas Ethereum offers 2.8%. Plus, there are also a plethora of decentralized finance (DeFi) solutions on both chains that directly offer yields on stablecoins that are structured using other mechanisms. But staking requires locking up your crypto and not having access to it for many days, and interacting with DeFi platforms entails a risk of losing everything if there’s a hack or some other problem, so neither of these approaches are ideal.
In the U.S., the problematic legal question that explains this discrepancy is whether someone offering you a return on your stablecoins is effectively offering you a security, or a bank product. The recently passed Genius Act also explicitly bars asset issuers from offering yields natively from their stablecoins — and that’s the biggest barrier. Until that is changed, native yield on mainstream stablecoins will remain rare, at least without interaction with third-party applications.
Zooming out, the President’s Working Group on crypto recently recommended that payment-stablecoin issuers be regulated like banks, which would place interest-bearing features firmly within insured-depository rules. That recommendation remains the north star for U.S. policy discussions, for now.
Outside the U.S., the picture is different, if not always better.
The E.U.’s Markets in Crypto-Assets Regulation (MiCA) explicitly prohibits issuers or service providers from granting interest on e-money tokens, the category it uses for fiat currency-backed stablecoins. But in the U.A.E., the law permits interest-bearing stablecoins, and some exist.
If you cannot receive interest on a stablecoin, another option for investors is to access yield via regulated funds, which would be considered cash equivalents outside the crypto sector.
Tokenized U.S. Treasury products, which is to say U.S. Treasuries that are tracked and managed on a blockchain, have become the compliant bridge of choice where the legality is not contested or ambiguous.
The tokenized T-bill market is now worth about $7.4 billion with an average yield to maturity around 4.1%, and it lives primarily on public chains, Ethereum in particular. Solana is also quickly becoming a second hub for Treasuries on-chain as its high throughput and minimal fees make it attractive. Crucially, not every chain has mature, regulated Treasury products yet, so liquidity pools and collateral use cases tend to concentrate where the funds live.
Nevertheless, major crypto exchanges like Coinbase have gotten creative with their desire to offer a yield to stablecoin holders. While technically a rewards program intended for promoting customer loyalty rather than explicitly delivering an interest payment, holders of the USDC stablecoin can earn a small daily return by leaving it on Coinbase.
Is this workaround actually legal, and will it be around for the long term? Who knows. The point is that it’s one way investors can get a return on their stablecoins without needing to interface with potentially sketchy decentralized applications (dApps) or interact with offshore asset issuers.
In the future, U.S. lawmakers could someday codify a new stablecoin regime that either permits interest under bank-style oversight, or cleanly opens the door for channeling stablecoin balances into tokenized cash funds, like a crypto equivalent of a money market fund. Until policies are adjusted, the best bet is to swap your stablecoins into on-chain Treasuries, and then swap them back out when you want to spend your capital. Sure, it’s a bit inconvenient, but it beats the riskier options by a mile.
