# Yield-bearing asset

## How USDN Generates Yield Through ETH Liquid Staking

The [USDN protocol](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#usdn-protocol) relies on an underlying asset, which is a [yield](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#yield)-bearing token. In the first instance, this asset will be wstETH. This means that the [USDN token](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#the-usdn-token) and long positions are backed by wstETH.

<figure><img src="/files/d2DMNnIbbujfEBuqxM46" alt=""><figcaption></figcaption></figure>

## Understanding wstETH

wstETH, or "wrapped staked ETH," is a token representing ETH staked within Ethereum's proof-of-stake mechanism via the [Lido protocol](https://lido.fi/). When you stake ETH with Lido, you receive stETH in return. stETH maintains approximately the same dollar value as ETH. You can then "wrap" this stETH to obtain wstETH.

wstETH is a yield-bearing token. Each day, rewards from Ethereum staking are represented by minting new stETH. These newly minted stETH are shared among all wstETH holders, increasing their value.

Unlike directly staked ETH, which is locked during the staking period, stETH and wstETH **remain** liquid. This **means** they can be traded, sold, or used in other [DeFi](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#decentralized-finance-defi) applications while continuing to accrue staking rewards. Since its introduction in October 2021, wstETH has generated an annualized yield of approximately 4.79%, making it a stable and attractive yield source.

For a deeper understanding of wstETH and the Lido protocol, you can refer to Lido's official documentation.

## Yield Capture by the USDN Protocol

As a wstETH-based [collateral](/ultimate-synthetic-delta-neutral/the-usdn-protocol/glossary.md#collateral), USDN passively benefits from ETH staking yields, regardless of users’ market positions. These yields enhance the overall value of the protocol and, by extension, the value of **the USDN token** itself.


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