Interest Bearing Tokens

Definition ∞ Interest bearing tokens are digital assets that automatically accrue additional value over time, representing earned interest. These tokens are typically generated when a user deposits underlying assets into a lending protocol or liquidity pool within decentralized finance. The token itself represents the principal plus any accumulated interest, simplifying the accounting and transfer of yielding assets. Their value increases relative to the underlying asset, reflecting the returns generated by the protocol.
Context ∞ Interest bearing tokens are a key component of many DeFi lending and borrowing protocols, frequently discussed in news related to yield generation and passive income strategies in crypto. Reports often analyze the various types of these tokens, their associated risks, and their role in the broader decentralized financial ecosystem, particularly concerning their use in composable financial products.