Not financial, legal, or tax advice. Yield-generating strategies carry real risk, including potential loss of principal.
Earning yield on stablecoins generally means lending them out, providing liquidity, or staking them through a platform or protocol, in exchange for a return, but every yield source carries some risk, despite the underlying asset being designed to hold a steady value, a nuance covered further in \[pillar hyperlink: What Are Stablecoins\].
Yield sources
Common sources include lending stablecoins to borrowers through a platform, providing liquidity to a trading pool, and participating in DeFi protocols that pay rewards for depositing stablecoins. Each source carries a different risk profile behind the advertised return.
Risks
Risks include the platform or protocol itself failing or being exploited, the underlying stablecoin de-pegging, and smart contract bugs. Higher advertised yields typically signal higher underlying risk, not a free return. See What Is Staking for how this compares to staking a volatile asset directly.
APY vs. APR
APY includes the effect of compounding returns over a year; APR does not. A yield advertised as APY will look higher than the same underlying rate expressed as APR, so always compare like for like.
Safety checklist
Check how long the platform has operated, whether it's been independently audited, how the stated yield is actually generated, and what happens to your funds if the platform fails. Related mechanisms are covered in \[pillar hyperlink: What Is DeFi\].