Yield Bearing Token

Definition ∞ A yield bearing token is a digital asset designed to automatically generate additional value or income for its holder over time. This typically occurs through mechanisms such as staking, lending, or participation in decentralized finance (DeFi) protocols. These tokens often represent a share in a revenue-generating pool or a claim on future protocol earnings. They abstract away the complexities of directly engaging with yield-generating mechanisms.
Context ∞ Yield bearing tokens are increasingly popular for passive income generation within the digital asset space, attracting investors seeking returns on their cryptocurrency holdings. Discussions often highlight the importance of understanding the underlying protocol’s security, the sustainability of the yield, and associated smart contract risks. A critical future development involves the continued innovation in yield generation strategies and the development of more robust risk assessment frameworks for these financial instruments.