Stablecoin Yield Isn't Free Money. Here's the Real Risk Behind the APY
6 min read
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6 min read
An app on your phone is offering 4%, 6%, maybe 9% a year on a stablecoin, a crypto token built to always equal one US dollar. It looks like a savings account, except it pays more and the balance never seems to move in price. That combination feels like free money.
It is not. Stablecoin yield risk is real, and it does not show up anywhere in the advertised percentage. Two real collapses show exactly what that risk looks like and how it hides until it does not.
A stablecoin is a crypto token designed to hold a fixed value, almost always one US dollar. It stays at that value only because something backs it: real dollars and short-term bonds sitting in a reserve, or, in a smaller and riskier category, a purely algorithmic mechanism with no real assets behind it at all.
The yield, usually shown as an APY (annual percentage yield, the return you would earn over a year if the rate held steady), does not come from thin air either. Someone is lending your stablecoin out, and that borrower is paying to use it. Every extra point of yield above what a plain bank deposit pays is compensation for a risk you are taking on, even when the marketing does not say so.
The clearest lesson in stablecoin history is TerraUSD, known as UST, and its lending protocol Anchor.
Anchor advertised a 20% APY on UST deposits, funded by subsidies from Terra's own team rather than genuine borrower demand (Bitstamp, Blockapps). It worked, for a while. By April 2022, UST had grown into the third-largest stablecoin in the world, with a market capitalization around $17.5 to $18 billion, and roughly 75% of every UST in existence was sitting inside Anchor chasing that 20% (Bitstamp, Chainalysis).
UST held its dollar peg with an algorithm, not a reserve of real dollars. It could be swapped for its sister token, LUNA, at any time to defend the price. That mechanism only holds up as long as people trust it.
On 7 May 2022, large withdrawals from Anchor and a wave of selling pushed UST below $0.98. As it slid to $0.95, then $0.90, holders rushed for the exit at once. The peg-defense mechanism forced the system to mint enormous amounts of new LUNA to absorb the selling, which crashed LUNA itself from over $80 to a fraction of a cent in under a week (Chainalysis). Research summarizing the episode puts the total value wiped out at roughly $50 billion (MIT Sloan CFI, summarizing the NBER working paper "Anatomy of a Run: The Terra Luna Crash"). The 20% APY did not survive. Neither did the dollar peg it was built on.
UST's mechanism made it fragile by design. But stablecoin yield risk is not limited to algorithmic tokens. USDC, backed one-to-one by real cash and short-term US Treasuries, broke its peg too.
On 11 March 2023, Circle, the company behind USDC, disclosed that $3.3 billion of USDC's roughly $40 billion in reserves was held at Silicon Valley Bank, which had just collapsed, the largest US bank failure since 2008 (CNN Business). USDC fell as low as $0.88 that weekend, with some exchange pairs trading briefly around $0.877 (CNBC).
USDC recovered because Circle pledged to cover any shortfall and US regulators guaranteed all SVB depositors would be made whole, restoring the peg by 13 March 2023 (CoinDesk). That recovery depended on a bank guarantee that had nothing to do with USDC's own design. A fully reserved stablecoin still carries counterparty risk: the risk that whoever is holding the reserve, or borrowing your deposit for yield, fails to deliver.
Nothing on offer in 2026 advertises Anchor's 20%, which is itself a sign the market re-priced this risk after 2022. Roundups of current rates put the range roughly here:
| Where | Typical APY (2026) |
|---|---|
| Major exchange flexible savings (Bybit, Kraken) | About 3.8% to 5.5% |
| Coinbase USDC rewards | Around 4.1% |
| Established DeFi lending (Aave, Compound, Spark) | About 3.5% to 9%, wider at the riskier end |
| Sky/Maker DAI Savings Rate | About 5% to 8% |
(Figures from platform rate pages and industry roundups including Datawallet's stablecoin rate comparison, retrieved 2026-08-06.)
The gap between the low and high end of that range is not random. A rate at the top of it, or above it, usually means a smaller platform, a less liquid protocol, or a borrower willing to pay more because safer lenders turned them down. Every one of those is a version of the same risk that took down Anchor.
Before putting a stablecoin anywhere for yield, four questions are worth answering, because none of them show up in the advertised APY:
Before any stablecoin yield decision, look at the coin itself rather than only the rate being offered on it. NetWort's USDC asset page shows its price and volatility over time, so you can see for yourself how flat, or not, that "stable" line really has been. For a broader look at how yield compares to price risk on a volatile asset, the crypto staking yield breakdown walks through the same trade-off from the other side.