What Is a ‘Yield-Bearing’ Collateral and How Does It Affect Efficiency?

Yield-bearing collateral is a tokenized asset that generates a return for the holder, such as a staked cryptocurrency or a token representing interest-earning government bonds. Using this as collateral in a stablecoin protocol improves capital efficiency because the locked collateral continues to generate yield for the borrower or the protocol.

This return effectively lowers the net cost of borrowing the stablecoin, making the over-collateralized system more attractive and productive for the user.