🧿 | How Yield Bearing Stablecoins Work?

Yield Bearing Stablecoins typically operate on blockchain platforms and leverage decentralized finance (DeFi) protocols to generate yield. The stablecoin issuer or platform locks the stablecoin reserves into various DeFi protocols, such as lending platforms or liquidity pools, to earn yield on the locked assets.

Mechanisms for Generating Yield

1. Lending and Borrowing: Yield Bearing Stablecoins can participate in lending and borrowing activities within DeFi protocols. Stablecoin holders can lend their stablecoins to borrowers, who pay yield on the borrowed amount. Lenders earn a portion of the yield generated, resulting in yield on their holdings.

2. Liquidity Provision: Some Yield Bearing Stablecoins allow users to provide liquidity to decentralized exchanges or automated market-making platforms. By adding their stablecoin holdings to liquidity pools, users earn a portion of the transaction fees generated by the platform.

3. Staking and Yield Farming: Certain Yield Bearing Stablecoins employ staking mechanisms where users lock their stablecoins in smart contracts to support the network's security or governance. In return, they receive additional tokens or rewards, which contribute to the overall yield on their stablecoin holdings.