Interest Bearing Token

Definition ∞ An interest-bearing token is a digital asset designed to generate yield or rewards for its holder over time. These tokens often derive their value from underlying assets or protocols that pay out interest through staking, lending, or other decentralized finance mechanisms. Holding such tokens provides a passive income stream.
Context ∞ News in the digital asset space often discusses interest-bearing tokens within the context of decentralized finance (DeFi) and yield farming strategies. Regulatory bodies are increasingly examining the classification and oversight of these tokens due to their resemblance to traditional financial instruments. Understanding the mechanisms of yield generation is important for assessing the risks and rewards associated with these assets.