Best Passive Income with Stablecoins: Aave vs Compound vs Tokenized T-Bills, Real APYs & Risks

Important notice (read first): This article is educational and general in nature. It is not investment, legal, tax, or financial advice and not a personal recommendation. Yields, platform availability, regulations, and token prices change frequently and without notice. Always do your own research, read and accept of DISCLAIMER below and our the Terms of Service, and consult qualified advisors before acting.

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What is Crypto Lending?

Crypto lending with stablecoins is a way for people to borrow and lend money using digital currencies that are designed to stay stable in value, usually tied to the US dollar. Imagine you have digital dollars called “stablecoins” sitting in your crypto wallet. Instead of just holding them, you can lend them out to others through special online platforms, and in return you earn interest, similar to how a bank savings account works. On the other side, someone who needs extra funds can borrow those stablecoins, usually by putting up other cryptocurrencies they own as collateral, like a kind of deposit. Because the stablecoin is meant to keep the same value, both the lender and borrower avoid the wild price swings of regular cryptocurrencies, making it feel more like traditional money lending but powered by blockchain technology.

Is the process safe? As always, do your own research, but serious providers offer commonly safe options.

But how is the system working? Unlike traditional finance, where trust is placed in banks or human managers, here everything is regulated by code. These platforms run on smart contracts, programs written on the blockchain that automatically enforce the rules without the need for intermediaries. To borrow stablecoins, every borrower must provide what’s called “overcollateralization,” which means they must deposit more value than they are borrowing. For example, if someone wants to borrow $1,000 in stablecoins, they might need to lock up $1,500 or more in another cryptocurrency as collateral. This ensures that even if the value of their collateral drops, the platform still has enough to cover the loan. Because these rules are coded into the system and executed automatically, serious platforms are generally considered safe, as they remove human error and reduce the chance of default.

What changed in 2025—and why it matters

Two structural shifts shaped the current landscape. First, tokenized Treasuries matured from experiments into credible treasury tools, with daily on-chain accrual and institutional administration that make them viable for conservative sleeves under corporate policy. Second, on-chain savings rates normalized alongside macro, which means you must check live rates rather than relying on last quarter’s memory, cash-like on-chain yields now behave like the real-world instruments they mirror. Meanwhile, blue-chip money markets preserved their role as the workhorses of stablecoin income, offering rates that flex with borrower appetite and protocol risk management. The practical implication is simple: verify, then deploy. Today’s blend should be a function of real-time rates and your governance constraints, not an attachment to yesterday’s APY.

The landscape at a glance (what actually pays you)

The passive-income toolkit in crypto is dominated by three pillars that behave very differently in practice: non-custodial lending markets, tokenized cash equivalents, and automated market makers. Lending protocols such as Aave and Compound allow you to supply stablecoins and earn a variable rate paid by borrowers. This approach tends to be the least intrusive operationally, you deposit, monitor utilization and risk parameters, and allow the market to do the rest, yet it still carries smart-contract, oracle, and liquidity risks that must be respected. Tokenized money-market exposure, exemplified by on-chain wrappers of short-dated Treasuries, aims to mirror front-end USD yields while settling and accounting on-chain; access typically requires KYC and the economics track macro rates rather than DeFi utilization. Automated market makers, whether Curve’s stable-swap style or Uniswap’s concentrated-liquidity design, reward you with trading fees for making markets in pairs such as USDC and USDT. The fee income can look steady during calm periods, but the economics hinge on volume and, in the case of concentrated liquidity, on whether price remains inside the range you selected. The critical structural risk in stable-stable pools is the depeg: a disturbance that can leave your inventory skewed toward the weaker asset at the worst possible moment.

How a depeg unfolds—and how to defend

Depegs rarely arrive as tidy textbook cases, they creep in through confidence. A custody scare, governance controversy, or market rumor prompts redemptions that exceed routine liquidity. On decentralized exchanges, the weak stable begins to dominate pool balances as traders swap the “good” asset for the one they distrust least, pressing the price off parity. If oracles reflect the stress, collateral requirements tighten, which in turn pressures borrowers and accelerates repayments or liquidations. Confidence then moves faster than plumbing: a spread opens between the promise of redemption at par and what spot markets will pay. Recovery requires credible, near-term access to reserves and market-maker capital; absent that, the loop feeds on itself. Defense is structural rather than heroic. Diversify across more than one high-quality stable, size positions so that forced exits are unnecessary, favor pools and vaults with transparent risk parameters, watch liquidity imbalances in flagship pools as early canaries, and resist the temptation to run ultra-narrow AMM ranges during macro uncertainty.

What yields look like today (live ballparks)

• Aave v3 (Ethereum) USDC supply: ~3.7–4.5% APY depending on utilization.

• Compound v3 (Ethereum) USDC supply: around ~5% APY recently.

• Morpho Blue curated USDC vaults: commonly ~6–8% APY, vault-specific.

• Tokenized T-bill/MMF (e.g., BUIDL): tracks front-end USD yields with daily on-chain dividends to qualified addresses; scale and activity continue to rise. (Expect a range roughly in line with short-term USD rates).

• Spark/DSR/sDAI: Maker/Sky reduced savings rates materially through 2025; trackers show the DSR moving down to low single digits as of recent months (some aggregators display ~1–3% APY in October). Always verify the live rate before allocating.

  
  

The risks—practical and precise

Even blue-chip protocols exist in an adversarial environment. Smart-contract bugs, governance errors, permissioned operator failures, and unexpected interactions between integrated systems are genuine hazards. Oracle design matters because misreported prices during stress can trigger liquidations that cascade through money markets, leaving lenders with impaired collateral and depressed utilization. Stablecoin design also matters: fiat-backed tokens concentrate issuer and custody risk, while crypto-collateralized designs add market-volatility channels; both can wobble. Concentrated-liquidity mechanics amplify these realities. A narrowly placed range offers attractive fee density only so long as the price trades within it; once price wanders outside, your capital sits idle and your realized APR decays to zero until you rebalance. Finally, operational pathways such as L2 bridges and cross-chain messaging introduce their own counterparty and availability assumptions, which you should treat as explicit risk decisions rather than background noise.

When not to chase yield

There are moments when discretion is the alpha. Centralized lenders that advertise double-digit APY without audited transparency are offering you a credit trade, not a savings product. Exotic farms that rely on emissions rather than organic demand can mask fragility behind attractive dashboards. Concentrated-liquidity positions that look brilliant on a backtest can go out of range for entire news cycles, erasing weeks of fee accrual in a single drift. Whenever the incremental percentage point requires opaque counterparties, non-standard custody, or leverage you cannot unwind in a hurry, the correct answer is to pass. Always the same golden rule: Make your own research before deciding!

Conclusion

In crypto, “lending” means placing your coins into a shared, on-chain pool so others can borrow them. The protocol tracks who supplied what, sets a floating interest rate based on supply and demand, and credits lenders with interest over time. You keep control of your wallet, you can usually exit by withdrawing from the pool when there’s liquidity, and your balance may go up or down in line with that variable rate. It’s straightforward in concept, deposit, earn interest, withdraw, but it still relies on code, price feeds, and the stability of the assets you lend, which is why understanding the risks is just as important as understanding the mechanism. This is a general explanation, not advice, always do your own research before using any platform.

About the Author

Marco Beffa

CEO at cryptocompliance.ai

Author of the Book “What The Hell are Cryptocurrencies?”

Lecturer on Digital Assets

Radio Broadcaster, Crypto and Blockchain Insights

#cryptolending #defiyield #stablecoinyield #passiveincomecrypto #aave #compound #tokenizedtreasuries #sdai #usdc #defirisk

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