Ripple Explains Two Ways Stablecoins Generate Yield

• Jack McDonald said yield can come from interest-bearing stablecoins where issuers share returns from reserve investments.
• He explained stablecoins can also earn yield when used as collateral or liquidity in DeFi protocols like Aave and AMMs.
• McDonald said these strategies turn idle digital dollars into productive on-chain assets with transparency and efficiency.

Ripple executive Jack McDonald, SVP of Stablecoins, outlined strategies for generating yield on idle digital dollars. In the Crypto in One Minute segment, McDonald highlighted two main approaches: investing in interest-bearing stablecoins and using them as collateral for decentralized finance (DeFi) applications. The discussion illustrates how stablecoins can provide efficiency and additional utility on-chain.

Direct Yield Through Interest-Bearing Stablecoins

McDonald explained that investors can choose stablecoins that accrue interest directly. In this model, the issuer invests the stablecoin reserves and shares the resulting interest with holders. He noted that such offerings exist only in select jurisdictions, limiting widespread access. This approach allows holders to earn a return without actively engaging in other blockchain activities.

However, the direct yield method depends on regulatory approvals and issuer policies, which vary significantly across regions. McDonald emphasized that these instruments function similarly to traditional savings accounts, delivering predictable returns while maintaining digital liquidity.

Secondary Utility Through DeFi and Liquidity Provision

The second approach involves using stablecoins as collateral or liquidity in DeFi protocols. Investors can deploy their stablecoins on platforms such as Aave or provide funds to automated market makers (AMMs). By doing so, they generate yield while enabling decentralized transactions and liquidity flows.

McDonald highlighted that this method leverages stablecoins for both utility and profit. Users can actively participate in the ecosystem while earning interest, enhancing on-chain efficiency. He compared this approach to traditional savings accounts but with greater transparency and interaction with blockchain-based financial systems.

On-Chain Efficiency and Utility

By combining direct interest and DeFi applications, stablecoins transition from static digital assets to functional yield engines. According to McDonald, these strategies maximize the dollar’s productivity while maintaining blockchain security and transparency. The discussion indicates a growing trend of integrating traditional financial concepts with on-chain technology for measurable returns.