A stablecoin balance and a stablecoin yield product are different things. Holding a token that aims to track a currency does not automatically entitle you to income. A return usually requires another arrangement: lending, a pooled strategy, a reward program or a claim linked to income-producing assets.

The percentage on the screen is the end of that arrangement. To understand it, work backward. Who pays the return? Why are they willing to pay it? What happens when the payment source weakens or you want to leave?

Two products displaying the same annualized rate can expose users to very different risks.

Borrowers can pay suppliers

In a lending pool, users supply assets that eligible borrowers can borrow under the protocol’s rules. Interest paid by borrowers can fund the return to suppliers after applicable allocations or fees.

Aave’s supply documentation describes returns that depend on borrowing activity and protocol parameters. Such rates are variable. A displayed rate is not a promise that demand for borrowing will stay the same for a year.

Utilization matters because a pool with much of its supplied liquidity borrowed behaves differently from one with abundant idle assets. The protocol’s interest-rate model can respond to that difference. Withdrawal also depends on available liquidity and the system’s rules, not only on the balance shown in an account.

Collateral requirements reduce some credit risks but do not erase every source of loss. Price movements, liquidation performance, contract failures and asset-specific problems can still matter. “Overcollateralized” describes a mechanism, not a guarantee of principal.

Rewards can supplement the interest

A platform may add tokens or promotional rewards to encourage deposits. That subsidy can make the displayed return larger than the income generated by the underlying activity.

Separate the base return from incentives. If a reward is paid in another token, its value in dollars depends on that token’s market price and on the user’s ability to sell it. A quoted rate can change even if the number of reward tokens distributed remains unchanged.

Ask when the program ends, how rewards are calculated and whether there are lockups or vesting conditions. An introductory reward should not be projected indefinitely. If the interface combines several components into one number, find the breakdown before making a comparison.

Some products link returns to securities, funds or other income-producing assets. The relevant question is what claim the user holds and how the income reaches that claim.

A stablecoin issuer earning income on reserves does not, by that fact alone, owe that income to every token holder. A separate product can have different terms, eligibility requirements, redemption arrangements and intermediaries.

With a tokenized investment, read the offering and ownership documents. Does the token represent a direct interest, a custodial entitlement or a contractual promise from another party? Our guide to tokenized asset rights explains why similar-looking tokens can convey different rights.

Do not infer deposit insurance, a government guarantee or direct ownership of reserve assets from the use of a familiar currency symbol. Those protections, where present, attach to specific arrangements and conditions.

APR and APY answer different questions

An annual percentage rate generally expresses a rate without the effect of compounding. An annual percentage yield includes a compounding assumption. Interfaces can still use different calculation methods or observation periods, so read the methodology.

An annualized number extrapolated from a short period can look precise while the underlying return changes frequently. It is not the same as a fixed contractual rate for the next twelve months.

For a hypothetical example, $1,000 earning a steady 5% simple annual return would produce $50 over a full year before fees. A variable product showing 5% today does not establish that outcome. This arithmetic illustrates the assumption; it is not a quote or a forecast.

Exiting is part of the product

Check whether withdrawals are immediate, queued, subject to a notice period or dependent on liquidity. Include network fees, conversion spreads and any exit charges when estimating the usable return.

A token representing a position may trade on a secondary market, but a buyer’s price can differ from its stated redemption value. Selling and redeeming are distinct exit routes with different dependencies.

Operational permissions matter too. Supplying assets can require a wallet approval. The authority granted should match the intended deposit and the contract you have verified. A high yield does not justify ignoring what the transaction authorizes.

Compare the mechanism before the percentage

A useful product note records the source of income, recipient of the user’s funds, return calculation, fees, withdrawal process and failure scenarios. If one of those cannot be established from the documentation, the headline rate does not fill the gap.

This is a framework for understanding a product, not a recommendation to deposit. The appropriate comparison depends on the risks and access to money a person can tolerate, not simply on which percentage is largest.