Yield-Bearing Stablecoins Compared: USDY vs sDAI vs USDe vs USDM (2026)
The Clarity Act changed the stablecoin landscape in one sentence: payment stablecoins cannot pay yield.
That means USDC — the most widely held dollar-pegged stablecoin — is legally prohibited from distributing interest to holders. If you’re holding USDC hoping for passive income, that door is now closed for good.
But yield-bearing stablecoins built for this purpose are doing exactly the opposite. Four of them — Ondo USDY, MakerDAO sDAI, Ethena USDe, and Mountain Protocol USDM — were specifically designed to deliver native yield from day one. Each takes a different approach. Each carries a different risk profile.
This article breaks down how all four work, compares them side by side, and tells you which one fits your situation — with step-by-step instructions for getting each.
Disclaimer: Nothing here is financial advice. Yield-bearing tokens carry real risks including smart contract exploits, collateral failures, and regulatory changes. Do your own research before depositing.
Why Yield-Bearing Stablecoins Exist
The Clarity Act’s yield ban on payment stablecoins didn’t come from nowhere. Regulators have long argued that yield-bearing stablecoins look like unregistered securities — you give someone money, they put it to work, you get a return. That’s the basic definition of an investment contract under the Howey Test.
Stablecoin issuers found a clean solution: design tokens that are explicitly investment vehicles, not payment instruments. You’re not holding a dollar substitute — you’re holding a receipt for a yield-generating position. The yield is native to the asset. No intermediary is distributing it to you as a “reward.”
The result is a growing ecosystem of purpose-built yield tokens, each backed by a different underlying asset:
- T-bills (USDY, USDM) — backed by short-term U.S. government debt
- DSR savings rate (sDAI) — backed by MakerDAO’s DAI Savings Rate smart contract
- Funding rate arbitrage (USDe) — backed by a delta-neutral derivatives position
The backing mechanism determines the yield source, the risk profile, and who the token is appropriate for. Let’s go protocol by protocol.
1. Ondo USDY — The Institutional T-Bill Stablecoin
Current APY: ~5.0–5.3% Backing: Tokenized short-term U.S. Treasuries Chain: Ethereum, Solana, Mantle, Arbitrum Risk Level: Low–Medium Who it’s for: Investors comfortable with KYC, seeking T-bill returns on-chain
How It Works
USDY (USD Yield) is issued by Ondo Finance, one of the leading real-world asset (RWA) tokenization platforms. When you purchase USDY, Ondo buys short-term U.S. Treasuries with your capital. The T-bill yield accrues to the token — USDY’s price gradually appreciates rather than distributing a separate dividend, similar to a rebasing model.
Because the underlying is U.S. government debt, USDY yield tracks the federal funds rate closely. At current rates, that means approximately 5% annually. If the Fed cuts rates significantly, USDY yield follows.
Compliance and Access
USDY is one of the more compliance-heavy options on this list. Ondo performs KYC/AML verification on holders, and USDY is not available to U.S. retail investors under the current structure (it’s offered under a Regulation S exemption for non-U.S. persons and qualified buyers).
This is worth understanding upfront. USDY offers institutional-grade exposure to T-bill yields on-chain — but it requires passing Ondo’s onboarding process, and U.S. retail access is restricted.
Composability
USDY is integrated across several DeFi protocols as collateral. On Solana, it’s used in lending markets. On Arbitrum and Ethereum, it can serve as collateral for borrowing. The yield accrues while the token is deployed as collateral — you don’t lose yield by using USDY in DeFi.
How to Get USDY
- Go to ondo.finance
- Complete the KYC/AML onboarding (takes ~1–2 business days)
- Connect a compatible wallet (MetaMask, Phantom, or similar)
- Purchase USDY with USDC or wire transfer
- USDY will appear in your wallet; yield accrues automatically as the token price increases
Note: Verify your eligibility under Ondo’s current terms. Non-U.S. persons in eligible jurisdictions can typically onboard directly.
2. MakerDAO sDAI — The OG DeFi Savings Account
Current APY: ~5–6% (varies with DSR rate) Backing: MakerDAO’s DAI Savings Rate (DSR) Chain: Ethereum (and bridged versions on L2s) Risk Level: Low–Medium (smart contract risk, DAI peg dependency) Who it’s for: DeFi-native users wanting a permissionless, fully on-chain savings vehicle
How It Works
sDAI is what you get when you deposit DAI into MakerDAO’s DSR — the Dai Savings Rate. It’s been around in concept since 2019, but the ERC-4626 vault standard made sDAI into a proper yield-bearing token in 2023.
When you hold sDAI, you hold a share of the DSR vault. The DSR is set by MakerDAO governance and is funded through the protocol’s surplus — generated from fees on DAI loans, liquidations, and more recently from RWA yield (MakerDAO has deployed substantial capital into tokenized T-bills to support the DSR).
The sDAI rate fluctuates with governance decisions. In early 2026, MakerDAO’s Sky rebrand has kept the DSR competitive as the protocol continues to allocate capital to T-bill RWAs. At current governance settings, expect 5–6% depending on MKR governance activity.
The Key Advantage: Pure On-Chain
sDAI is as permissionless as DeFi gets. No KYC. No off-chain custody. The DSR contract has been audited multiple times and holds billions in TVL. If you want a yield-bearing stablecoin you can access with nothing more than an Ethereum wallet, sDAI is the cleanest option.
The Key Risk: DAI Depeg and Protocol Risk
sDAI is denominated in DAI, not USDC. DAI’s peg has held well historically, but it’s a managed peg — not a fiat-backed one. In extreme market stress (flash crashes, oracle attacks), DAI has briefly traded below $1. MakerDAO’s collateral mix (including volatile crypto assets) introduces a layer of risk that USDC or USDT don’t have.
The DSR contract itself is battle-tested, but smart contract risk is never zero.
How to Get sDAI
- Acquire DAI (buy on Coinbase, swap on Uniswap, or borrow from a lending protocol)
- Go to app.spark.fi (Spark Protocol — the front-end for sDAI deposits)
- Connect your Ethereum wallet
- Deposit DAI → receive sDAI
- Yield accrues automatically; sDAI price increases vs. DAI over time
Alternatively: Use app.sky.money (MakerDAO’s Sky rebrand interface) to convert USDC directly to sDAI in one step.
3. Ethena USDe — The Highest-Yield, Highest-Risk Option
Current APY: Variable; historically 10–25%+ during bull markets, 5–8% in neutral conditions Backing: Delta-neutral perpetuals position (staked ETH + short ETH futures) Chain: Ethereum Risk Level: Medium–High Who it’s for: Experienced DeFi users who understand funding rate risk and want maximum yield
How It Works
USDe is unlike every other stablecoin on this list. It doesn’t hold fiat assets or real-world instruments. Instead, it creates a synthetic dollar using a delta-neutral strategy:
- You deposit USDC (or other assets) into Ethena
- Ethena buys staked ETH (stETH, weETH) with your deposit
- Simultaneously, it opens a short ETH perpetual futures position equal in size to the staked ETH
- The result: a position that stays at exactly $1 regardless of ETH price movements (long spot + short perp = no net price exposure)
The yield comes from two sources:
- Staking yield on the ETH (~3–4% APY)
- Funding rate income from the short perpetual position
The funding rate is where USDe’s potential becomes extreme. In bull markets, traders pay huge premiums to hold long ETH perp positions. Shorts collect that funding. During the 2024–2025 bull run, USDe was generating 20–30%+ APY on the sUSDe (staked USDe) token.
The Critical Risk: Negative Funding Rates
The same mechanism that generates outsize yield in bull markets creates losses in bear markets. When market sentiment turns negative, longs start collecting funding (shorts pay). In prolonged bear conditions, USDe yield can compress significantly or briefly go negative.
Ethena has a reserve fund to buffer against negative funding periods — it’s never failed to maintain the peg — but this risk is real and should be understood before depositing.
The other risk is exchange counterparty risk. Ethena’s perpetual positions live on centralized exchanges (Binance, Bybit, OKX). A major exchange failure would be a significant event for the protocol.
How to Get USDe / sUSDe
- Go to app.ethena.fi
- Connect your Ethereum wallet
- Swap USDC or other stablecoins for USDe (no KYC required)
- To earn yield: stake USDe → receive sUSDe (staked USDe, the yield-bearing form)
- Yield distributes as sUSDe price appreciates vs. USDe
Access restrictions: U.S. users face geo-restrictions. Use a wallet with no U.S. IP association and verify current terms.
4. Mountain Protocol USDM — The Simplest T-Bill Stablecoin
Current APY: ~5% (tracks T-bill rate) Backing: Short-term U.S. Treasuries Chain: Ethereum, Base, Optimism, Arbitrum Risk Level: Low–Medium Who it’s for: Non-U.S. holders wanting a rebasing stablecoin with transparent T-bill backing
How It Works
USDM is Mountain Protocol’s answer to USDY: a T-bill-backed stablecoin that delivers yield through a rebasing mechanism. Unlike USDY (which appreciates in price), USDM’s supply increases — you hold the same number of tokens, but you receive new USDM daily into your wallet reflecting accrued T-bill yield.
Mountain Protocol is a Bermuda-regulated entity, and USDM is available to non-U.S. accredited investors (retail in many non-U.S. jurisdictions). The reserve is composed entirely of short-term U.S. Treasuries and cash, with third-party attestation.
Why USDM vs. USDY?
Both are T-bill stablecoins with similar APYs. The difference is mostly structural:
- USDY appreciates in price (1 USDY = $1.08 over time) — better for DeFi collateral, as balances stay constant
- USDM rebases (more tokens appear in wallet) — better for accounting transparency, familiar to TradFi users
DeFi composability: USDM is integrated in several protocols on Base and Optimism as collateral, though USDY currently has deeper DeFi integration.
How to Get USDM
- Go to mountainprotocol.com
- Complete the KYC onboarding process (eligibility check for non-U.S. persons)
- Connect your Ethereum wallet
- Mint USDM with USDC
- Yield appears as new USDM tokens deposited to your wallet daily
Side-by-Side Comparison
| Feature | USDY (Ondo) | sDAI (MakerDAO) | USDe (Ethena) | USDM (Mountain) |
|---|---|---|---|---|
| Current APY | ~5.0–5.3% | ~5–6% | 5–25%+ (variable) | ~5% |
| APY Source | T-bills | DSR (mixed RWA/fees) | ETH staking + funding rate | T-bills |
| Peg Mechanism | Fiat-backed (Treasuries) | Over-collateralized | Delta-neutral synthetic | Fiat-backed (Treasuries) |
| KYC Required | Yes | No | No (geo-restrictions apply) | Yes |
| U.S. Accessible | No (retail) | Yes | Restricted | No |
| Smart Contract Risk | Low | Medium | Medium–High | Low |
| Backing Transparency | High (attestations) | High (on-chain) | Medium (exchange custodial) | High (attestations) |
| DeFi Composability | High | Very High | High | Medium |
| Yield Mechanism | Price appreciation | Price appreciation | sUSDe price appreciation | Rebase |
| Chains | ETH, SOL, ARB, Mantle | ETH (L2 bridges) | ETH | ETH, Base, OP, ARB |
Which Yield Stablecoin Is Right for You?
There’s no single “best” option — but there’s almost certainly a best option for your situation.
If you want the safest yield: USDM or USDY
Both are backed entirely by U.S. Treasury bills — the closest thing to risk-free in any financial system. At 5%, you’re earning the federal funds rate on-chain. For capital preservation with yield, these are the most conservative choices on this list.
The tradeoff: both require KYC and are unavailable to U.S. retail investors. If that’s you, skip to sDAI.
If you want permissionless DeFi yield: sDAI
No KYC. Works in your Ethereum wallet with zero friction. Battle-tested smart contracts with years of audit history. The DSR rate has been competitive since MakerDAO started deploying into T-bill RWAs.
The tradeoff: you’re exposed to DAI peg mechanics and MakerDAO governance risk. It’s low probability, but it’s not zero.
If you want maximum yield and understand the risks: sUSDe (staked USDe)
In bull market conditions, no yield-bearing stablecoin on this list will come close to what sUSDe generates. The funding rate arbitrage can produce 15–30%+ during strong market cycles.
The tradeoff: in prolonged bear markets, yield compresses — potentially to near zero or briefly negative. This is not a set-and-forget savings vehicle. Treat it more like a high-yield strategy that requires monitoring.
Risk-adjusted recommendation
For a long-only, set-and-forget position: sDAI (permissionless, reliable, composable) For non-U.S. investors wanting fiat-backed simplicity: USDM For non-U.S. DeFi power users wanting DeFi composability: USDY For yield-maximizers who understand perpetuals risk: sUSDe
What Happened to Earning Yield on USDC?
Worth a quick note for readers who arrived here from our Clarity Act explainer: you cannot earn native yield on USDC through Circle or any Circle-compliant issuer under the Clarity Act framework. USDC is classified as a payment stablecoin, and payment stablecoins are prohibited from paying yield.
You can still earn yield on USDC as an input asset — by depositing it into a DeFi lending protocol (like Aave or Morpho) or by swapping it into one of the four yield-bearing tokens on this list. The Clarity Act bans USDC from paying yield as USDC. It doesn’t prevent you from converting your USDC into a yield-bearing form. See our stablecoin passive income guide for the DeFi lending route.
Frequently Asked Questions
Are yield-bearing stablecoins safe?
No on-chain asset is completely safe — all carry some combination of smart contract risk, collateral risk, and regulatory risk. T-bill-backed options (USDY, USDM) are the most conservative. sDAI carries protocol risk. USDe carries funding rate and exchange counterparty risk. Understand the specific risks before depositing.
Do I owe taxes on yield-bearing stablecoin income?
In most jurisdictions, yes. Yield from sDAI, sUSDe, and USDM (rebases) typically triggers ordinary income. USDY’s price appreciation may be treated as capital gains in some jurisdictions. Consult a tax professional — this area of crypto tax law is still evolving.
Can I use yield-bearing stablecoins as DeFi collateral?
Yes, and this is one of their key advantages. USDY on Arbitrum and USDM on Base are accepted as collateral in several lending protocols. sDAI is deeply integrated in Spark Protocol. When you deposit them as collateral, you continue earning yield on the collateral — you’re not forgoing yield to borrow.
What happens if Ethena’s funding rate goes negative?
Ethena has a reserve fund specifically for this scenario. The protocol doesn’t break if funding goes negative — sUSDe yield simply compresses. During the longest sustained negative funding periods on record, Ethena’s reserve has been sufficient to maintain the peg. But it’s a known risk, and the reserve has limits.
Is USDY available to U.S. investors?
Not under the current Regulation S structure targeting non-U.S. investors. Ondo has been exploring pathways for U.S. retail access through registered fund structures, but as of early 2026, direct USDY purchase is not available to U.S. retail investors.
Bottom Line
The Clarity Act didn’t kill stablecoin yield — it pushed it into a purpose-built ecosystem of yield-bearing tokens that regulators explicitly distinguish from payment stablecoins.
USDY and USDM bring T-bill returns on-chain with institutional-grade compliance. sDAI offers permissionless DeFi savings with MakerDAO’s deep liquidity. And USDe offers the highest potential yield for those who understand what’s driving it.
The stablecoin yield space in 2026 is more mature, more diversified, and more capital-efficient than it’s ever been. The question isn’t whether you can earn meaningful yield on stablecoins — it’s which structure makes sense for your risk tolerance, jurisdiction, and yield target.
PassiveYieldLab provides educational content about DeFi and crypto yield strategies. Nothing on this site constitutes financial, investment, or legal advice. Always conduct your own research and consult appropriate professionals before making financial decisions.