Yield Bearing Tokens

Definition ∞ Yield bearing tokens are digital assets that automatically generate returns or rewards for their holders. These tokens represent a claim on an underlying asset or a position in a decentralized finance (DeFi) protocol that generates yield through various mechanisms, such as lending, staking, or providing liquidity. The yield can be paid out in the same token or another asset, often accruing directly to the holder’s wallet. They are designed to offer passive income streams within the crypto economy.
Context ∞ Yield bearing tokens are a core component of the DeFi ecosystem, enabling users to earn returns on their digital asset holdings. Discussions often revolve around the sustainability of the yields offered, the smart contract risks involved, and the regulatory classification of these tokens. The innovation in this sector continues, with new protocols and strategies emerging to optimize yield generation while managing associated risks.