Where Stablecoin Yields Come From (and When 10%+ APY Is a Red Flag)

Every stablecoin yield is a payment, and payments have payers. The single most useful habit in this corner of crypto is refusing to see “8% APY” as a property of your money — it’s a fee someone pays you for a risk you’re now holding. This guide names the four payers, anchors them to the risk-free rate, and ends with the red-flag checklist we apply to our own yields table.

The anchor: what “risk-free” pays

Short-term US Treasuries define the baseline return on dollars. Whatever they yield (check the daily curve — it moves), that’s what a dollar earns for approximately zero risk. Every stablecoin rate should be read as Treasury rate + spread, and the spread is never charity. Tokenized T-bill products (Ondo’s USDY and peers) make the anchor literal: they hold the bills and pass through the rate minus fees, which is why they cluster just below Treasuries — the honest ceiling for “boring” dollar yield.

Source 1: T-bill pass-through

The issuer holds government paper; you hold their token; the coupon flows through. Sky’s savings rate is a hybrid of this and protocol revenue. Risk profile: issuer/structure risk and regulatory geography (many exclude US persons) rather than market risk. Tell: the rate tracks the Fed, not crypto sentiment.

Source 2: Overcollateralized lending

Aave, Compound, Morpho: traders post $150 of volatile collateral to borrow $100 of stables and pay interest that flows to depositors. Utilization sets the rate algorithmically — in euphoric markets leverage demand spikes and lending yields hit double digits; in quiet ones they sag toward (or below) T-bills. Risk profile: smart-contract bugs, oracle failures, and liquidation cascades in crashes; the blue-chip protocols have years of battle-testing and public track records. Tell: the rate breathes with the market cycle.

Source 3: Funding-rate capture

Ethena’s sUSDe holds spot crypto hedged with short perpetual futures; when perps trade above spot (most of a bull market), shorts collect funding, and that flow becomes yield — at times well into double digits. It’s a genuine strategy, not a Ponzi — and also not a savings account. Risk profile: funding can compress to zero or negative for months, plus exchange counterparty and hedge-execution risk. Tell: yield history is a rollercoaster, and the docs (to their credit) say so.

Source 4: Subsidies

Sometimes the payer is a marketing budget: token emissions on a new chain, promotional tiers for new exchange users, points programs. The yield is real while it lasts; the business question is only how long the sponsor keeps paying. Terra’s Anchor — 20% “stable” yield from a visibly draining subsidy pool — is the terminal case study. Risk profile: cliff risk. Tell: capped balances, “intro rate,” or a token whose emissions fund the APY.

What actually failed in 2022 (and what didn’t)

The collapses that defined the last cycle — Anchor at 20%, Celsius and BlockFi at 8–12% — were not exotic black swans. They were rates unsupported by revenue: subsidy pools draining and opaque lending desks reaching for risk to cover promised payouts. Meanwhile, the transparent overcollateralized protocols paying an unglamorous 2–6% went through the same crashes and paid every withdrawal. The lesson isn’t “yield is fake”; it’s that the visible, explainable yield sources survived and the “trust us” ones didn’t.

The red-flag checklist

Before depositing anywhere, ask:

1. Who pays this, and why? Borrowers? Treasuries? Funding? A marketing budget? No answer, no deposit.
2. Is the spread over T-bills explained by a named risk you’re willing to hold — or just by “crypto”?
3. Does the headline rate require locking, native-token holdings, or “new user” status? Then the durable rate is the base tier, not the banner.
4. Is it fixed? Honest yield floats with its source. A fixed high rate means someone is smoothing it — with what?
5. Custody: can you exit permissionlessly (DeFi), or are you an unsecured creditor (CeFi)? 2022’s queue of frozen withdrawals was made entirely of the second kind.

Our stablecoin yields page applies this framing to every row — each rate ships with its risk type and a one-line “what pays this” note, verified weekly. Pair it with the compound interest calculator to see what a defensible rate does over five years — compounding a survivable 5% reliably beats collecting a spectacular 15% right up until the cliff.