The Stablecoin Yield Trap

Stablecoins are designed to remain worth approximately $1—but how can platforms offer returns of 8%, 10% or even more on an asset that does not generate income by itself?

In today’s Daily Crypto Deep Dive, we investigate where stablecoin yield really comes from, who is paying it and what risks may be hidden beneath products that appear almost as safe as traditional savings accounts.

Galaxy Digital has launched new decentralized-finance vaults designed to help institutional investors earn returns on stablecoins through Morpho and Fireblocks. One strategy focuses on established collateral and capital preservation, while another reaches into more complicated products involving liquid-restaking tokens, Pendle and Ethena.

Could this bring billions of dollars into institutional DeFi—or could professional-looking products hide the same leverage, liquidity problems and interconnected risks that have caused previous crypto collapses?

But a stable price does not mean the investment behind it is stable.

The yield may depend on leveraged traders, volatile collateral, automated liquidations, derivatives markets, reward tokens, restaking systems and several interconnected smart contracts operating correctly at the same time.

Stablecoins may remain stable.

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