Guide to Staking Stablecoins

This guide is part of the “Guide to Staking Crypto” series.

Earning interest at a bank today often feels like filling a bucket with a hole in it, the tiny trickle in can’t keep up with the money leaking out through inflation. This frustration with low income and high inflation is what pushed many investors into the world of crypto in the first place. Then the whole world saw the rollercoaster of Bitcoin and Ethereum prices, and people got scared. Somewhere between those two extremes lies a middle ground called stablecoins.

Stablecoins are cryptocurrencies pegged to the value of the dollar, designed to stay steady and fill the gap between cryptocurrencies and traditional banking. But today, they are more than just a parking spot for capital. You can put stablecoins to work in a process called staking.

By staking stablecoins, you can generate a yield (between 4 and 14% APY) without worrying about whether your investment is going to drop by 50% in the next month. Our guide explains how to stake stablecoins like USDT and USDC, where to do it, and which strategies work best (and the risks involved).

If you read through till the end, you will know how staking works, the difference between centralized and decentralized platforms, and how to avoid the most common mistakes. So whether you are managing a large portfolio or just testing the waters for yourself, stablecoin staking is a great way to earn a return without investing directly into risky assets.

What exactly is stablecoin staking?

Stablecoin staking is like saying, “I am lending my dollars in token form to the system, and in return, I get paid interest.” 

You deposit stablecoins such as USDT or USDC into a platform. That platform then uses your funds in various ways: providing liquidity to traders, backing loans, or supporting the network. In exchange, you earn rewards. 

It’s similar to giving your money to a bank, except here you get to choose the terms, the risk level, and the return is significantly better than the dusty 0.5% you get in a traditional savings account.

How does it work?

On a centralized exchange, you can just click “stake” and watch your balance grow. Behind the scenes, the exchange is lending those tokens to market makers or borrowers. 

The procedure is more transparent on decentralized protocols. You can think of a protocol as a set of rules that helps run and secure a blockchain network. After you link a self-custody wallet and add your stablecoins to a lending or liquidity pool, smart contracts take care of the rest. These contracts distribute rewards, compute interest automatically, and maintain on-chain records of all transactions.

In both situations, you are effectively enabling your stablecoins to be used rather than sitting around doing nothing. The amount you receive is typically expressed as Annual Percentage Yield (APY), which accounts for both the interest rate and compounding effects.

The main advantages of staking stablecoins

Stablecoin staking is the missing cryptocurrency middle ground for a lot of investors. Your money isn’t sitting around earning almost nothing, but you’re also not betting on the next erratic cryptocurrency rally. Let’s look at the three primary advantages:  

Make steady passive income

A consistent yield is the most evident advantage. You can earn interest by staking USDC or USDT. While traditional savings accounts in developed economies often pay less than 2%, staking APY on leading protocols can range from 4% to 18% depending on the platform. 

These predictable earnings appeal to investors who want to get rewarded without relying on speculative price movements. For many investors just starting out, the ability to compare APY across platforms is what makes staking attractive as a semi-passive investment strategy.

Low volatility compared to other crypto assets

Another advantage is that stablecoin holdings are designed to remain pegged to the US dollar. Unlike Bitcoin or Ethereum, you do not face 30% drawdowns in a single week. Because of this, staking is particularly beneficial if you wish to make income without being subject to the same erratic fluctuations that can be seen in cryptocurrency prices.  

For those who prefer steady growth over speculative adrenaline, the decreased volatility acts as a buffer and fosters a sense of stability.

Bear market trading strategy

Lastly, staking stablecoins serves as a defensive strategy during periods of market decline. Many investors withdraw to fiat or remain passive when cryptocurrency markets experience drawn out corrections, such as in 2025. However, you can keep earning staking rewards if you keep stablecoins instead of switching to cash. 

Understanding the dangers of staking stablecoins

There are risks associated with every investment and staking stablecoins is no different. Examining every potential negative scenario is necessary for a professional approach. Here are some things to think about:

Risk of de-pegging

Although stablecoins are supposed to trade at a 1:1 ratio, history has shown that this peg can break. The ultimate cautionary tale is the 2022 collapse of TerraUSD. The ecosystem collapsed after billions were lost. This occurred as a result of the stablecoin’s lack of real life assets and reliance solely on brittle market confidence.  

Your stablecoin holdings may lose value if one drops below the dollar peg. Because of this, the majority of investors continue to use the largest stablecoin options (USDT, USDC), which are backed by assets and have shown themselves to be resilient over a number of market cycles.

Smart contract risk

When you use DeFi platforms, your stablecoins are controlled by code. These smart contracts automate lending, borrowing, and staking processes. Now while this may sound efficient, keep in mind, they are also vulnerable to bugs or exploits. 

If hackers find a flaw, your funds could vanish. Independent audits reduce but do not eliminate this risk. Staking through audited protocols like Aave or Compound is generally safer, but never fully risk-free.

Custodial and platform risk

Centralized exchanges and yield services may simplify staking but require trust in the operator. The painful lessons of FTX, Celsius, and BlockFi show what happens when that trust is broken. 

Not your keys, not your coins remains the golden rule. DeFi as an industry, avoids custodial risk by letting you manage your own wallet. Ultimately that shifts the responsibility for security entirely onto you.

Regulatory risk

Finally, regulators around the world are tightening control over stablecoins. The winding down of BUSD and the SEC’s actions against Paxos serve as examples of how regulations can change suddenly. Platform operations, yields, and even specific services may be restricted by new frameworks.

You should keep a close eye on these developments as you start staking, particularly if your platform is active in several jurisdictions.

Where to stake stablecoins: CeFi vs DeFi

Choosing where to stake stablecoins is an important decision that will affect you in different ways. The two main routes for staking are centralized finance (CeFi) platforms and decentralized finance (DeFi) protocols. Each comes with a different balance of convenience, control, and risk.

Centralized finance platforms

New stakers are now able to access CeFi services like Binance, Coinbase, and Nexo. They provide customer service, well-known mobile apps, and simple onboarding. Some even offer a limited amount of hacker protection or insurance.  

But what you’re giving away here is custody. You hand over your stablecoin holdings and rely on the exchange to pay your staking reward. APY rates here tend to be moderate, typically in the 4% to 12% range, but you have limited options to customize strategies. 

For people who want predictable earnings with minimal effort, CeFi is the most beginner-friendly entry point.

Decentralized finance protocols

Then we have DeFi protocols such as Aave, Compound, and Curve. These are called protocols instead of platforms because they let you connect your wallet directly and become a liquidity provider. You retain full control of your funds and can move funds in or out as you please. 

The transparency here is unmatched because every transaction is recorded on-chain. APY rates are often higher, sometimes exceeding 15%. Remember, there is always a reason for these higher rewards. You bear smart contract risk and must pay gas fees for each transaction of restaking. 

Managing DeFi requires more specific technical knowledge. You will need to understand wallet interactions and be able to adjust collateral ratios. For professional investors, this route is the most efficient way to capture the best APY and get the best rewards as market demand changes.

Top stablecoins for staking

To decide which stablecoin is the best for staking, we will be looking at their backing, market trust, and track record.

USDC 

USDC is currently the most transparent. It is issued by Circle Internet Group Inc. and backed 1:1 with dollar reserves held in regulated U.S. banks and short-term Treasuries. 

This transparency gives it credibility with both institutions and regulators. USDC staking is still the best option for conservative investors looking for steadycoin interest with predictable returns.

USDT

The most popular cryptocurrency trading pair and the largest by market capitalization is USDT. Even though Tether has previously come under fire for its reserves, it still controls the majority of the world’s markets and has kept the dollar pegged through several stressful situations. 

Because USDT is a global liquidity providing asset, staking it gives access to the deepest liquidity and frequently higher staking APY on DeFi platforms.

DAI

A decentralized substitute is DAI. It functions without a central issuer and is supported by overcollateralized cryptocurrency assets on the MakerDAO protocol. Those who value decentralization will find this structure appealing. 

To maintain its peg, DAI has occasionally had to rely on USDC reserves, demonstrating that even decentralized systems are susceptible to centralized assets. Although its yields vary based on protocol governance decisions, they are generally competitive.

There are other stablecoins out there, but their liquidity is weaker, which makes them less dependable for staking purposes. For the average investor, the choice narrows down to comparing USDC and USDT to see where they can get rewarded at the best APY with the least amount of risk.

How to stake stablecoins on a DeFi protocol

For readers who are ready to try it themselves, we made a simple example using Aave, currently one of the most popular DeFi platforms. This process works similarly is other protocols as well.

Step 1: Create a self-custody wallet

Install a wallet that serves as your entry point to decentralized apps, we recommend MetaMask. Your stablecoin holdings will be kept here. Since losing your recovery phrase would result in permanent loss of access to your money, write it down and keep it offline.

Step 2: Put money in your wallet

Transfer USDC to your MetaMask address after purchasing it from any exchange. To cover future transaction fees, be sure to keep a small quantity of the native token of the network (ETH on Ethereum). You are unable to use DeFi platforms without these tokens (to pay for gas fees).

Step 3: Connect to the DeFi application

Go to the official Aave website, select Connect Wallet under Get Started. Choose MetaMask, verify the connection, and make sure your balance is accurately displayed by the app. To prevent falling victim to phishing scams, always verify the URL of the website.

Step 4: Make a stablecoin deposit

Decide which stablecoin, in our case USDC, you wish to supply. After entering the amount, confirm the transaction. Your money is added to the lending pool after being verified on-chain. At this stage, you start earning stablecoin interest automatically and you turn into a liquidity provider.

Step 5: Monitor your earnings and withdraw

On Aave, interest accrues in real time. You can check your staking APY, compare APY across assets, and withdraw at any time by clicking “Withdraw.” 

The accrued staking reward is included in your balance and grows block by block, giving you predictable earnings without constant management.

Staking for steady gains

Stablecoin staking has matured into one of the most reliable ways to get rewarded in the crypto economy. By holding tokens like USDT or USDC, investors can earn a steady stream of income, and enjoy predictable earnings without riding the same price rollercoaster as Bitcoin or Ethereum investors. 

Yet, de-pegging, smart contract flaws, custodial risk, and regulatory changes all make sure that you have to do your research. The playbook for investors is pretty straightforward. Only stake stablecoins with audited DeFi platforms and reputable exchanges/protocols. If approached carefully, stablecoin staking can give you a rare balance of stability and growth, helping you keep capital productive even when the markets are uncertain.

Frequently asked questions

If you have a question, this section covers the questions we hear the most often.

What is a good APY for stablecoin staking?

A reasonable staking APY in 2025 ranges from 4% to 8% on large centralized exchanges, and up to 15% or more on DeFi platforms. Anything promising above 20% deserves extra caution, since higher APY rates almost always mean higher risks.

Is stablecoin staking risk-free?

No. Even though your underlying asset is pegged to the US dollar, risks remain. These include de-pegging events, smart contract exploits, and failures on the side of the platform. Compared to volatile tokens, stablecoin staking carries less price risk.

Which stablecoin is the safest for staking?

USDC is widely considered the best stablecoin for conservative investors because of its transparency and regulated backing. 

USDT is more widely used globally, which provides strong liquidity. Both have maintained their peg through multiple stress periods, but diversification is often the smartest approach.

Can I lose money staking stablecoins?

Yes. See “Is stablecoin staking risk-free?”, you can lose money staking. This is why spreading stablecoin holdings across multiple platforms and keeping allocations reasonable is an important part of risk management.

How much do I need to start staking stablecoins?

Most platforms let you start with as little as $10 to $20. In DeFi, transaction fees can make very small deposits inefficient. Many investors prefer starting with at least a few hundred dollars to ensure gas fees do not eat into predictable earnings.