Earning interest on stablecoins means handing them to someone who will deploy them, and the structure you hand them through determines what claim you have if something goes wrong. A platform deposit usually makes you an unsecured creditor of that platform. A fund structure gives you an interest in a pool of assets held separately from the manager's own balance sheet. A self-directed position in a protocol keeps the assets under your control and gives you the smart-contract risk in exchange.
Three structures, three entirely different outcomes in a failure — and the advertised interest rate tells you nothing about which one you are in. This article covers what happens to the assets, what claim each structure creates, and the questions that identify the structure before you commit capital.
What Actually Happens When You Deposit
When stablecoins are transferred to a yield product, they generally stop being yours in the way people assume.
In most custodial arrangements, the assets are credited to your account as a balance — a record of what the platform owes you — while the actual tokens are pooled with everyone else's and deployed. The user agreement, not the dashboard, defines what the platform may do with them. Those agreements commonly include consent to lend, pledge or otherwise use customer assets.
This is not a hidden practice. It is disclosed, usually in the terms, and it is how the yield is produced: the platform earns a return on your assets and passes some of it to you. The issue is that depositors read the rate and not the terms, and the two describe different products.
Three Structures, Three Different Claims
| Platform deposit | Fund structure | Self-directed | |
|---|---|---|---|
| Who holds the assets | The platform, usually pooled | A custodian or the fund entity, held separately from the manager | You, in your own wallet |
| What you own | A claim against the platform | An interest in the fund's assets | The assets themselves |
| If the operator fails | Typically an unsecured creditor in the queue | Fund assets are separate from the manager's balance sheet | Unaffected by the operator; exposed to the protocol |
| Main risk | Credit and solvency of the platform | Strategy performance and the custodian | Smart contract, protocol design, your own execution |
| Transparency of use | Defined by user agreement; often broad | Defined by mandate and reporting | Fully visible on-chain |
| Typical liquidity | On demand, subject to suspension | Defined redemption terms | Immediate, subject to protocol |
Platform Deposit
The familiar version: an exchange or lending platform offers a rate on balances. It is simple, usually liquid on demand, and concentrates two different risks in one entity — the platform both holds the assets and decides what to do with them.
Fund Structure
Capital is contributed to a vehicle that runs a defined strategy, with assets held apart from the manager's own balance sheet and a mandate describing what may be done with them. Less liquid in most cases, with defined redemption terms rather than on-demand withdrawal, in exchange for separation between the manager's solvency and the assets themselves.
Self-Directed
Deploying into a protocol yourself. You retain custody throughout, which removes the operator entirely from the risk picture — and replaces it with smart contract risk, protocol design risk, and full responsibility for your own execution.
None is strictly superior. They are different trades, and the point is to know which one has been made.
The Word That Decides Everything: Rehypothecation
Rehypothecation is the reuse of assets a customer has posted — lending them on, pledging them as collateral, or deploying them in a position. It is a standard feature of financial intermediation and it is not inherently improper. In crypto yield products, it is frequently the entire source of the return.
What makes it consequential is the combination of three things: assets are pooled, so individual holdings cannot be traced; they are reused, so they may be out on loan when you want them; and the depositor is typically an unsecured creditor, so in an insolvency they stand behind secured lenders.
Those three features are individually unremarkable and collectively decisive. They are the reason a crypto deposit paying 8% and a bank deposit paying 4% are not the same product with a different rate — they are different instruments with different claims attached.
What 2022 Demonstrated
The category learned this at scale. Over 2022 a series of large platforms that had marketed high-yield crypto accounts paused withdrawals and entered bankruptcy, and the pattern across them was consistent enough that the Federal Reserve Bank of Chicago published a retrospective on the crypto runs of 2022 analysing it.
The structural failure it identifies is a classic one: platforms promised withdrawals on demand while deploying customer funds into illiquid and high-risk positions to finance the yields they were advertising. That is run risk, and it does not require fraud to be fatal — only a mismatch between what was promised on the liability side and what was held on the asset side.
Two details from that period are worth carrying forward. Customer assets held on several platforms proved to be commingled, making it difficult to establish what portion of any individual's holdings had been lent or pledged. And depositors discovered through bankruptcy proceedings that their balances made them unsecured creditors, a status that had been disclosed in filings and terms but widely not understood. Congressional testimony following the collapses examined exactly these governance and custody failures, including in evidence given to the Senate Banking Committee.
The lesson is not that custodial products are illegitimate. It is that the rate and the risk were being advertised in completely different fonts.
Redemption Terms Are Part of the Yield
A quoted rate is only meaningful alongside the terms on which capital can be withdrawn, and this is where products that look similar diverge most.
- On-demand liquidity is the headline feature of most platform deposits — and the thing most likely to be suspended under stress, precisely when it matters.
- Defined redemption terms — notice periods, lock-ups, scheduled windows — look restrictive by comparison. They also mean the manager is not forced to liquidate positions into a falling market to meet unexpected withdrawals, which is the mechanism by which forced selling turns a drawdown into a failure.
A lock-up is not simply a cost to the depositor. It is the structural feature that lets a strategy be run as designed rather than as redemptions dictate. Whether that trade is worth making depends on the strategy, but it should be read as a design decision rather than a penalty. The terms attached to our own plans are set out on the fund plans page.
Seven Questions to Ask Before Depositing
- Who holds the assets — the operator, a separate custodian, or you?
- What claim do I have — a contractual balance, an interest in a pool of assets, or the assets themselves?
- What does the agreement permit — can the assets be lent, pledged or rehypothecated, and is that disclosed plainly?
- Where does the yield come from — reserve interest, lending, liquidity provision, or a derivatives strategy? Each compensates a different risk, which we set out in where stablecoin yield comes from.
- Is the rate fixed, variable or promotional — and if promotional, what happens when the campaign ends?
- What are the redemption mechanics — notice, windows, gates, and what has happened to them historically under stress?
- What is disclosed, and how often — holdings, counterparties, strategy, audits, attestations?
If a question cannot be answered from published material, that absence is itself the answer.
Why the Structure Matters More Than the Rate
Rates across this category cluster within a fairly narrow band most of the time, because they are competing for the same capital. Structures do not cluster at all. The difference between two products quoting similar numbers can be the difference between a segregated claim and a position in a creditor queue.
This is also why comparing stablecoin interest rates across platforms as if they were savings accounts is the wrong exercise. The number is the output of a structure and a strategy. Read those first, and the rate becomes interpretable — a price for a specific set of risks rather than a figure to be maximised.
Our own strategy, and what it does with capital, is set out in our delta-neutral strategy overview, with structural and operational questions answered on our FAQ page.
Frequently Asked Questions
Are stablecoin deposits insured?
Generally not in the way bank deposits are. Deposit insurance schemes such as FDIC coverage apply to insured bank accounts, not to crypto balances held with a platform. Some operators hold private insurance covering specific risks such as custody failure, which is not the same as deposit protection and should be read for what it actually covers.
What is the difference between a deposit account and a fund?
A deposit account creates a claim against the operator — you are owed a balance. A fund gives an interest in a pool of assets typically held separately from the manager's balance sheet. The practical difference appears in an insolvency: a deposit holder is generally a creditor of the failed entity, while fund assets are structurally separate from the manager.
Can a platform lend out my stablecoins?
If the user agreement permits it, yes, and many do. The relevant language concerns lending, pledging, hypothecation or use of customer assets. It is usually disclosed in the terms rather than in the marketing.
Why do some products have lock-up periods?
Because a strategy with a defined holding period cannot be run reliably against unlimited on-demand withdrawals. Lock-ups and notice periods prevent a manager from being forced to liquidate into stress to meet redemptions — which protects remaining capital as well as constraining it.
Is a higher stablecoin interest rate a warning sign?
Not automatically, but an unexplained premium over comparable products is worth investigating. Elevated rates can reflect genuine market conditions, temporary incentives, or additional risk being taken. The distinction is whether the source of the excess can be identified and whether there is a reason for it to persist.
Reading the Structure First
The question that determines the outcome is not what rate is being offered. It is who holds the assets, what they are permitted to do with them, and what you own if the arrangement fails.
Those three answers are usually available in published terms, and they take longer to find than the rate does — which is precisely why most people compare the rate instead. The structure is the product. The number is just its current output.
This article is published for informational purposes and does not constitute investment, legal or tax advice, or an offer to transact. It describes structural categories generally and does not characterise any specific product or operator. Yields are variable and not guaranteed, redemption terms differ by product, and capital is at risk.
This article is for information only and is not investment advice. Past performance does not guarantee future results.
