A yield bearing token is a type of digital asset that generates income or returns for its holder. This income is often derived from various decentralized finance (DeFi) platforms where users can lend, stake, or provide liquidity using these tokens.

When someone holds a yield bearing token, they typically receive rewards in the form of additional tokens or interest payments over time. This feature attracts investors looking for ways to earn passive income from their digital investments without actively trading.

The process usually involves locking the tokens in a smart contract, which facilitates the generation of yield through various mechanisms such as lending or liquidity pools. The yield may vary based on factors like market demand, token usage, and the specific protocol employed.

As a result, yield bearing tokens offer a way for users to increase their holdings while also participating in the broader ecosystem of a blockchain project. This can enhance the overall utility of the token and contribute to its value in the market.