Yield Bearing Credit

Definition ∞ Yield Bearing Credit refers to a financial instrument or digital asset that generates returns or interest for its holder, typically by being lent out within decentralized finance protocols. These credits represent a claim on an underlying asset plus accrued interest, allowing holders to earn passive income. They are often tokenized, enabling their transferability and use across various DeFi applications. Such instruments provide a mechanism for capital efficiency in decentralized lending markets.
Context ∞ News frequently discusses yield bearing credit in the context of decentralized finance and the opportunities for passive income generation. Discussions often center on the risks associated with lending protocols, such as smart contract vulnerabilities or liquidation risks. Future developments involve more sophisticated risk assessment models, standardized yield-bearing tokens, and greater regulatory clarity for these novel financial instruments.