The stablecoin yield landscape
Stablecoins are the most useful product crypto has produced for most users. They offer dollar exposure with instant settlement, global access, and yields that often beat traditional bank savings by 3-5x. At any given time, USDC, USDT, and DAI can earn 3-8% depending on the venue and the lending demand. The question is not whether to earn yield on stablecoins — it's where, and what risk comes with that yield. This calculator shows the compounded outcome of parking the same deposit at three different yield sources over the same time horizon, so you can see exactly what a 1-2% rate difference compounds to.
DeFi: Aave, Compound, and Morpho
Aave is the largest decentralized lending protocol, routinely holding $10B+ in deposits. USDC lending rates on Aave v3 float with demand, typically 3-6% on Ethereum mainnet and often higher on L2s. Compound operates similarly. Morpho sits on top of both and optimizes peer-to-peer matching for a small APY bump. Smart-contract risk is real — Aave has been audited extensively and has never been exploited on its core protocol, but lesser-audited forks have lost funds repeatedly. Stick to the top three protocols for size. Our DeFi yield calculator models the full picture including token rewards.
CeFi: Coinbase, Nexo, and the graveyard
Centralized platforms offer higher advertised yields — Nexo has offered 8-12% on USDC, Coinbase 4-5%. The catch is counterparty risk. Celsius, BlockFi, Voyager, and FTX all offered high yields and all failed in 2022, taking retail deposits with them. The lesson is not "CeFi is always bad" — Coinbase has survived multiple cycles — but that any platform yield above the DeFi rate must be justified by something other than efficiency (usually, the platform is lending your coins to riskier borrowers).
The USDC depeg scare of 2023
In March 2023, Silicon Valley Bank collapsed while holding $3.3B of Circle's USDC reserves. USDC briefly traded as low as $0.88 before recovering when the Fed backstopped the bank. The takeaway: even "safe" stablecoins have bank-deposit risk on their reserves. Diversify across USDC, USDT, and DAI to spread that risk. A 33/33/33 allocation reduces single-issuer blowup risk without sacrificing meaningful yield.
Tax treatment
In the US, stablecoin lending yield is ordinary income at receipt. If you earn $1,000 in USDC yield, that's $1,000 of ordinary income — even though the USDC didn't appreciate. At a 24% federal rate, your 5% APY becomes 3.8% after tax. In a Roth IRA or 401(k) — if you can access crypto there — the yield is tax-free, which makes the math meaningfully better. Use our crypto tax calculator to estimate the hit.
Compared to T-bills and money markets
Four-week Treasury bills yielded 5.3% in 2024. SGOV and BIL ETFs track these with 0.1% expense ratios. This is the true risk-free rate stablecoins must beat. If USDC on Aave yields 4% and T-bills yield 5%, T-bills win — they have zero counterparty, smart-contract, or depeg risk. Only consider stablecoin yield when it exceeds T-bills by at least 1-2% to compensate for crypto-specific risks.
The sustainable ceiling
Real stablecoin yield comes from borrowers willing to pay interest to leverage long on crypto. In bull markets, that demand pushes rates to 6-8%. In bear markets, demand dries up and rates fall to 2-4%. Any yield above 10% is a flag: it's either subsidized (protocol burning treasury), leveraged (recursive looping), or high-risk (uncollateralized lending). The Terra/Anchor 20% yield was all three.
Position sizing for stablecoin yield
A reasonable allocation for stablecoin yield is the portion of your portfolio you'd otherwise hold in cash or short-term bonds — typically 10-30% for most investors. This serves as dry powder for crypto drawdowns and a meaningful yield floor. Use our portfolio rebalance tool to maintain the target, and our future value calculator to project long-run outcomes.