A Historical Perspective on Stablecoin Staking and Interest Rates

Stability has always been the core promise of stablecoins. Yet behind this calm exterior lies a turbulent history of yield attempts - bold experiments that sought to pair predictable price with passive income. The concept was straightforward from the first staking procedures to the cautious resurgence of today: make your dollars work without losing their dollar-ness.

That idea proved harder than expected.

For a while, staking stablecoins looked like the next logical step in DeFi. Platforms offered eye-catching interest rates on what felt like a low-risk asset. Billions poured in. But then came the fine print, the risks behind the rewards, and the crashes that followed. What started as a vision of accessible, dependable yield turned into a cautionary tale.

This article revisits that journey - not as nostalgia, but as context. What worked. What broke. And what lessons remain for a new generation of yield platforms aiming to earn trust, not chase hype.

Before staking, before the drama - stablecoins had to earn their place. And they did. Quietly at first, then at scale.

Tether (USDT) set the stage in 2014. It was simple: a token that moved like crypto but claimed to hold its value like the dollar. Exchanges adopted it. Traders relied on it. Over time, it became the most traded asset in the entire ecosystem - not because it was perfect, but because it was useful.

Source: https://t.ly/xMeCZ

Three years later, MakerDAO introduced DAI - a decentralized alternative. Unlike USDT, DAI wasn’t backed by cash reserves. It relied on overcollateralized crypto vaults. By 2024, its supply approached $5 billion. It was one of the first real attempts to combine decentralization with price stability.

With those foundations in place, attention shifted to the next question: could stablecoins generate yield?

Source: https://studio.glassnode.com/metrics?a=DAI&category=&ema=0&m=market.MarketcapUsd&mAvg=0&mMedian=0&s=1573603200&u=1724716800&zoom=

That idea gained traction fast. Curve Finance began offering 10–20% APY on stablecoin pools. Compound and Aave paid between 2–8%, depending on utilization and demand. The premise was simple - deposit stablecoins, earn interest, avoid volatility. For some time, it worked. Billions flowed in.

Then came the algorithmic phase.

Source: https://www.chainalysis.com/blog/how-terrausd-collapsed/

Between 2021 and 2022, TerraUSD (UST) captured headlines. Its staking protocol, Anchor, promised 20% APY. The offer was bold - and massively successful. At its peak, UST held a market cap of over $18 billion. Anchor alone managed more than $14 billion in deposits.

It unraveled in May 2022.

UST lost its dollar peg. The unwind was brutal - over $40 billion in value disappeared in days. It wasn’t a minor correction. It was a collapse that sent shockwaves through the entire stablecoin sector. Investors, regulators, and developers suddenly had to reckon with a new reality: not all “stable” models were built to hold.

Since then, the yield landscape has shifted. Protocols like Aave and Compound adjusted incentives. Curve pools saw APYs drop to 1–3%. Risk appetite dried up. Capital started looking for safer ways to earn - not just higher rates.

Staking has always promised something simple: rewards for participating in the network. You lock your tokens, you earn. At its core, it's a trade - liquidity for income.

Yield Farming Or Staking - Which One To Choose?

More on that

Validators take the place of miners in Proof-of-Stake (PoS) systems. To safeguard the network, users stake or assign their currencies. They get paid in exchange, frequently in the same asset. More than $300 billion worth of cryptocurrency was bet on blockchains by 2024. Over $45 billion was invested in Ethereum alone.

Source: https://t.ly/435JS

Ethereum’s shift to PoS in 2022 marked a turning point. By early 2024, over 20 million Ethereum had been staked, which equated to over $36 billion in locked value. Solana and Cardano followed suit, each with billions at stake. Returns ranged from 4% to 10% - high enough to draw serious capital, low enough to feel sustainable.

Staking, however, was used for purposes other than blockchain security. The idea quickly extended to stablecoins.

Here, the mechanism shifted. Instead of protecting a chain, stablecoin staking meant lending assets through DeFi platforms. The structure was different, but the reward logic was the same: lock funds, get paid.

Anchor Protocol offered 20% APY on UST. Aave and Compound paid out lower, steadier yields - typically between 2% and 8%, depending on demand. These platforms didn’t rely on validator sets or slashing conditions. They earned yield by lending deposits out or providing liquidity, usually in overcollateralized structures.

It looked safer. It looked easier. But the events that followed would test both assumptions.

Stablecoin staking promised too much, too fast. The early rates were tempting - sometimes unreal. Curve pools paid over 10%. Anchor reached 20%. Even conservative platforms like Aave and Compound held above 5% at times. But behind every high yield was a formula that couldn’t last.

The more users joined, the faster those rates declined. In the middle of 2023, APYs on stablecoin pools fell to as low as 1-3 percent, which was much less than what early adopters had come to anticipate and just over inflation. The excitement soon subsided.

The more users joined, the faster those rates declined. In the middle of 2023, APYs on stablecoin pools fell to as low as 1-3 percent, which was much less than what early adopters had come to anticipate and just over inflation. The excitement soon subsided.

Regulation added another brake.

In 2023, the U.S. Securities and Exchange Commission began warning issuers and platforms. One major stablecoin project received a $10 million fine in May 2024 for failing to meet financial disclosure requirements. That single case spooked an entire category. New staking models stalled. Platforms quietly adjusted terms. Some paused launches altogether.

Low rates and legal risk weren’t the only problems.

The market was different. Risky assets were shunned by capital during the bear market of 2022–2023. Stablecoins stopped being growth engines and instead became parking sites. Lending demand dried up. Yields followed. At one point, both USDT and USDC earned below 2% APY on Compound and Aave.

Users took notice.

Instead of locking funds, many chose liquidity. Others looked for incentives in other places, such as protocols that offered experimental derivatives, cross-chain prizes, or governance tokens. Stablecoins, once seen as the low-risk yield solution, got left behind.

And then came fear.

The collapse of TerraUSD in 2022 wiped out over $40 billion. That shock didn’t just affect algorithmic models - it raised doubts across the board. In 2023 alone, over $3 billion was lost to DeFi hacks and exploits. Even well-audited platforms weren’t immune. Staking started to look less like passive income, more like exposure.

The result? Participation thinned. Platforms recalibrated. Users waited.

Nothing tested the promise of stablecoin staking like real-world failures. And few were as visible = or as costly = as TerraUSD.

UST was positioned as an algorithmic stablecoin, kept in balance through its relationship with LUNA. On paper, the mechanism sounded elegant. In practice, it unraveled quickly. Anchor Protocol, the platform offering 20% returns on UST deposits, ballooned with over $14 billion locked in. Then, in May 2022, UST lost its peg.

The fallout was brutal. Over $40 billion in value vanished in a matter of days. Retail savers, institutions, and entire protocols were caught in the collapse. The event shook confidence across the sector - not just in algorithmic models, but in yield systems as a whole.

Other cases told a quieter story.

DAI, the decentralized stablecoin built by MakerDAO, held its peg. But the returns didn’t hold attention. Platforms like Compound offered just 1.5% APY on DAI deposits by mid-2023. That number, while steady, struggled to compete with riskier alternatives. Users moved on.

The contrast was clear. One model offered too much, too fast - and broke. The other stayed cautious - and got ignored.

Source: https://defillama.com/yields/pool/c8a24fee-ec00-4f38-86c0-9f6daebc4225

Each example left its mark.

UST reminded the market that complexity doesn’t protect against collapse. And DAI showed that transparency alone doesn’t attract capital unless returns are compelling. For stablecoin staking to matter again, it would need to solve for both: trust and yield.

Care About Protocol Safety?

This article tells you what to consider

Not all stablecoins aim for the same thing. That becomes clear the moment staking enters the picture.

DAI, for instance, built its brand on decentralization. It’s backed by crypto collateral and governed by MakerDAO. On paper, it should be the obvious choice for on-chain purists. But when it came to staking, the numbers told a different story. Platforms like Compound and Aave offered modest yields - 1.5% APY, sometimes less. Safe, but underwhelming.

USDC followed a different path. Issued by a U.S.-based entity, backed by real cash and short-term Treasuries, it found traction in compliance-heavy environments. Many institutional desks preferred it for that reason. It also performed well in staking models, but mainly on centralized platforms. In DeFi, yields hovered in the mid-single digits. Not high enough to turn heads, but stable enough to keep capital parked.

Tether’s USDT was harder to pin down. For years, critics questioned its backing. Yet it remained dominant. Its liquidity dwarfed competitors. Traders used it more than any other token. That same ubiquity translated into staking demand - not because the rates were highest, but because USDT was everywhere. Even low APY models worked when volume and utility stayed high.

Then there were the outliers.

Terra’s UST was the most famous. It scaled fast. Its 20% APY brought massive inflows. And its collapse was just as dramatic. Others, like Ethena or Cardano-based models, are still early. They experiment with hybrid collateral or synthetic systems. Some offer competitive returns today. Whether they’ll hold tomorrow is an open question.

This divergence isn’t just academic. It affects how users choose where to park funds. Some want predictability. Others want scale. A few will still chase novelty. What’s clear is that “stable” doesn’t mean uniform - and not every dollar-pegged token can stake the same way.

The appetite for stablecoin income hasn’t disappeared - it’s just waiting for better terms.

Some signals suggest the cycle may turn again. In late 2023, Aave introduced new mechanics that allowed higher yields on stablecoins by integrating deeper into its liquidity systems. It wasn’t a reinvention. It was an adjustment - but one that signaled staking might still have room to grow if done differently.

Payments add another layer. Remittances settled via stablecoins are now estimated at over $6 billion annually. That flow alone creates potential for passive income models - if platforms can capture the volume without introducing risk.

But if stablecoin staking is to scale sustainably, the fundamentals need to change.

Clarity on regulation is one. In the EU, the Markets in Crypto-Assets (MiCA) framework is being implemented in phases through 2024. It creates formal guidelines for how stablecoins can operate across member states. That kind of definition is exactly what the U.S. still lacks - and what continues to slow broader platform rollout.

Security is the other core issue. 2023 saw over $3 billion in DeFi losses due to exploits. Platforms that want to revive stablecoin staking will need stronger audits, better incentives for reporting flaws, and systems that can withstand real-world volatility.

Accessibility matters too. For many, staking still feels technical. Depositing stablecoins into a yield module shouldn’t require four tabs and three token approvals. If staking is ever to become mainstream, the experience must shrink into a few steps - ideally right inside a wallet.

Rates alone won’t fix it. Yield models will need to pair competitive returns with stability and simplicity. Some platforms are starting to build toward that - combining liquidity, lending, and passive interest into single products. But the bar is high. After so many failed experiments, trust won’t return overnight.

The next chapter of stablecoin staking won’t be built on hype. It will depend on what people actually use - and what they’re willing to lock up, once again.