September 17, 2025 – Global
The World Blockchain Association (WBA) has released an in-depth analysis of on-chain yield, examining how decentralized finance (DeFi) has transformed stablecoins, lending protocols, staking rewards, and liquidity strategies into complex revenue engines. As investors chase higher annualized returns, the WBA points out that understanding the underlying risks, operational complexity, and sustainability of yield mechanisms is more critical than ever.
With cryptocurrency adoption accelerating worldwide, Bitcoin, Ethereum, DeFi, Web3, NFT, DAO, Tokenization, and Stablecoin ecosystems continue to serve as the foundation for blockchain-driven financial innovation. Yet, as yields diversify across protocols and products, so too do the risks—ranging from smart contract vulnerabilities to regulatory uncertainty.
From Stablecoins to DeFi: A Multi-Layered Yield Landscape
The World Blockchain Association reports that the origins of on-chain yield were straightforward. In the early days of DeFi, revenue primarily stemmed from borrowing and lending spreads or automated market maker (AMM) fees. Fast forward to 2025, and the picture has become far more layered. Yield opportunities now span:
- Tokenized cash and fiat-backed stablecoins that may or may not distribute reserve interest to users.
- Debt-based models, including overcollateralized loans and structured vaults.
- Protocol-native rewards from Proof-of-Stake (PoS) networks and restaking markets.
- Liquidity provision in decentralized exchanges, yielding fees and incentive tokens.
- Complex structured products, such as leverage-enabled vaults and synthetic strategies.
WBA emphasizes that the headline APY (Annual Percentage Yield) often obscures the real net return, which must be adjusted for counterparty risk, operational costs, and volatility exposure.
Zero-Yield Stablecoins: The Baseline
Stablecoins such as USDT, FDUSD, and USD1 remain dominant liquidity layers across exchanges and wallets. Their reserves are typically backed by short-term U.S. Treasuries, cash equivalents, or repos. However, the issuers retain the interest income from these reserves, leaving retail users with no direct yield.
According to the World Blockchain Association, this design ensures simplicity, liquidity depth, and predictable redemption mechanics, but at a cost: missed interest. For example, with Treasury yields averaging 4%–5%, billions in potential income have bypassed stablecoin holders and accrued to issuers instead.
Yield-Distributing Stablecoins: Platform-Dependent Returns
Stablecoins such as USDC and PYUSD highlight another model—where platforms like Coinbase or PayPal share a fraction of reserve yields with users. Yet, WBA notes that these distributions are selective, capped, and geographically restricted.
The recently enacted GENIUS Act in the United States introduces additional regulatory ambiguity, potentially limiting the ability of payment-oriented stablecoins to transmit interest directly. Instead, platforms may pivot toward loyalty points or cash-back rewards, further fragmenting user outcomes.
Decentralized Non-Yielding Stablecoins
Decentralized stablecoins such as DAI, USDS, USDf, and USDe rely on on-chain collateralization or delta-neutral strategies instead of fiat reserves. While these models achieve dollar-pegging through mechanisms like overcollateralized vaults or perpetual futures hedging, they do not automatically deliver returns to holders.
The World Blockchain Association highlights that while these protocols capture income streams (from stability fees or collateral yields), the value accrues to protocol treasuries unless users migrate to “staked” versions (e.g., sDAI or sUSDe). Thus, the ecosystem has evolved dual-tier stablecoins: a base layer for settlement and a yield-bearing derivative for investors.
Staked and Wrapped Stablecoins: Unlocking Idle Value
Wrapped stablecoins, such as sDAI, sUSDS, sUSDf, and sUSDe, pass underlying yield directly to holders by compounding returns into token redemption value. This innovation has transformed idle stablecoin balances into productive savings instruments while preserving composability within DeFi.
The World Blockchain Association reports that among these, sUSDe has emerged as a leader. At its peak, annualized yields exceeded 50%, fueled by funding fees from perpetual contracts and staking rewards. Over time, yields have normalized to the 7%–12% range, reflecting market maturity and dilution across more participants.
Tokenized Treasuries and Institutional Yield
Institutional players like BlackRock (BUIDL) and Franklin Templeton (BENJI) have entered the blockchain space by tokenizing U.S. Treasury money-market funds. Unlike USDT or USDC, these securities-like products distribute reserve yields directly to whitelisted investors.
The World Blockchain Association points out that the market for tokenized Treasuries has ballooned to over $5.6 billion in 2025, representing a 545% increase in one year. However, access remains restricted to accredited investors, with most liquidity confined to private channels rather than public AMMs.
Protocol-Native Yield: Staking and Restaking
At the heart of DeFi yield lies Proof-of-Stake consensus. On Ethereum and similar networks, validators and delegators earn rewards from:
- New token issuance (inflationary rewards)
- Transaction fees and priority tips
- MEV (Maximum Extractable Value) opportunities
While yields fluctuate with network demand and validator performance, risks include slashing penalties, validator downtime, or congestion in withdrawal queues.
To address illiquidity, liquid staking tokens (LSTs) such as stETH have proliferated, enabling users to stake ETH while still deploying LSTs in DeFi. The next frontier is restaking, where the same collateral is pledged to multiple protocols, multiplying yield but also compounding risk.
AMM Fees and Active Yield Strategies
Yield also emerges from liquidity provisioning in decentralized exchanges (DEXs). AMM providers earn swap fees, incentive tokens, and sometimes governance rewards. However, impermanent loss and pool imbalances can erode profitability.
Beyond AMMs, structured products like Pendle Finance and Euler V2 have introduced sophisticated cash-flow engineering, including fixed-term yield stripping and leveraged yield farming. These tools bring TradFi-style structuring into DeFi but require higher technical literacy and carry smart contract risk.
Key Risks Highlighted by WBA
The World Blockchain Association warns that yield is never free. Major risks across the ecosystem include:
- Opportunity cost: Non-yielding stablecoins leave billions in interest unclaimed.
- Regulatory uncertainty: The GENIUS Act and evolving securities rules may reshape access.
- Liquidity mismatches: Wrapped tokens and LSTs can depeg in stressed markets.
- Leverage amplification: Recursive strategies magnify both upside and systemic fragility.
- Smart contract exploits: Even audited protocols remain vulnerable to coding flaws or oracle manipulation.
- Exit congestion: Staking withdrawal queues can trap capital during volatility.
Looking Ahead: Sustainable Yield in Web3
According to the World Blockchain Association, the future of on-chain yield will likely balance three forces:
- Regulation – determining what forms of tokenized yield products can legally distribute interest.
- Risk management – creating transparent frameworks for users to assess complexity versus return.
- Innovation – leveraging DAO governance, NFT-based collateralization, and tokenization of real-world assets (RWA) to expand the design space.
Ultimately, the goal is not to maximize APY, but to achieve sustainable, risk-adjusted returns that strengthen the DeFi ecosystem’s credibility as an alternative to traditional finance.
About the World Blockchain Association
The World Blockchain Association (WBA) is a global organization dedicated to advancing knowledge, policy dialogue, and innovation in blockchain and digital finance. As a leader in the blockchain and cryptocurrency space, the WBA provides stakeholders with trusted insights at the intersection of technology, regulation, and global economic trends through research, reporting, and thought leadership.
