Yield-bearing stablecoins have witnessed explosive growth in 2024, surging to $11 billion in circulation and now accounting for 4.5% of the overall stablecoin market. This marks a dramatic rise from just $1.5 billion and a 1% market share at the beginning of the year, according to a report released by Pendle.

Pendle Emerges as Market Leader

Pendle, a decentralised finance (DeFi) protocol specialising in yield-generating strategies, has emerged as a dominant player in this fast-expanding sector. It currently commands 30% of the total value locked (TVL) in yield-bearing stablecoins approximately $3 billion.

Once dominated by assets like Ether, Pendle’s ecosystem has undergone a significant shift. A year ago, Ether represented 80%–90% of the protocol’s TVL, but it has now shrunk to below 10%. Stablecoins, on the other hand, make up 83% of Pendle’s $4 billion TVL, up from less than 20% last year.

Interest-Free Traditional Stablecoins Fall Behind

Traditional stablecoins such as USDt (USDT) and USDC continue to dominate the market with over $200 billion in circulation, yet they do not offer any interest to holders. With the US Federal Reserve interest rate at 4.3%, Pendle estimates that stablecoin users are collectively missing out on more than $9 billion in potential annual returns.

This gap has fuelled demand for yield-bearing alternatives, particularly among investors seeking higher returns without leaving the safety of stable assets. Pendle enables users to lock in fixed yields or speculate on variable interest rates, offering a more dynamic option compared to traditional stablecoins.

Regulatory Green Light Spurs Growth

Much of the sector’s recent momentum stems from growing regulatory clarity under the administration of US President Donald Trump. In February, the US Securities and Exchange Commission approved yield-bearing stablecoins as “certificates,” subjecting them to securities regulations rather than banning them outright.

This approval allows yield-bearing stablecoins to operate under specific legal frameworks, including mandatory registration, disclosure obligations, and investor protections. Additionally, legislative proposals such as the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act and the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act suggest a more favourable policy direction for stablecoin innovation.

Pendle believes this regulatory clarity will spur massive growth. The firm forecasts that total stablecoin issuance could double to $500 billion over the next 18 to 24 months, with yield-bearing stablecoins capturing 15% of the market equating to $75 billion, a sevenfold increase from current levels.

Shift in Pendle’s Strategy and Market Dynamics

Initially known for its role in airdrop farming, Pendle has repositioned itself as a foundational layer for DeFi yield markets. This strategic pivot aligns with broader investor interest in yield-generating crypto strategies, both from retail and institutional segments.

Currently, Ethena’s USDe stablecoin dominates Pendle’s yield-bearing stablecoin TVL, accounting for around 75%. However, emerging players like Open Eden, Reserve, and Falcon are quickly gaining traction. Their combined share has risen from a mere 1% to 26% over the past year, indicating a growing diversification within the yield-bearing stablecoin space.

Looking Ahead: Expansion and Integration

To build on its momentum, Pendle plans to expand beyond the Ethereum network. The protocol is preparing integrations with leading DeFi platforms such as Aave and Ethena’s upcoming Converge blockchain. It also intends to support other high-throughput networks like Solana, further broadening its reach and usability.

The increasing demand for yield strategies within the crypto market has prompted innovation across the board. On 19 May, Franklin, a hybrid cash and crypto payroll firm, announced Payroll Treasury Yield, a new offering that utilises blockchain-based lending protocols to help businesses earn returns on their payroll reserves.

With the regulatory environment becoming clearer and user demand for better returns intensifying, yield-bearing stablecoins appear poised for continued expansion. As protocols like Pendle lead the charge, this emerging asset class could redefine the utility and attractiveness of stable digital currencies in the global financial landscape.