Funding Scholarships With Stablecoin Yield (And Why Most People Do It Wrong) #
Traditional scholarship endowments invest in stocks and bonds, generate 4% to 6% annually if they’re lucky, and distribute from that yield. The principal stays intact. Stablecoin yield can generate 8% to 12% or more depending on the protocol. So yes, you can absolutely endow a scholarship fund using yield generated from stablecoins. But most people set this up backwards and create unnecessary risk.
Here’s how it should work. You create a private foundation or fund a donor advised fund with the assets you want to dedicate to scholarships. Inside that structure, you allocate to stablecoins deposited in yield-generating protocols. The yield flows to the foundation or DAF, and that yield funds the scholarships. The principal stays invested. This works exactly like a traditional endowment except the yield source is different.
The risk is in protocol selection and custody. Not all stablecoin yield is created equal. Some protocols are offering 15% because they’re essentially ponzi schemes that will collapse. Others are offering 8% because they’re lending to legitimate counterparties with real collateral. You need to know the difference.
Counterparty risk matters here more than it does with traditional investments. When your endowment owns Treasury bonds, the U.S. government is your counterparty. When your stablecoins are deposited in a DeFi protocol, your counterparty might be a smart contract written by anonymous developers with no legal recourse if something breaks. Use conservative protocols with proven track records, real collateral, and transparent risk management.
Regulatory risk is the other piece people ignore. The SEC hasn’t decided what all of this is yet. Rules will change. Some protocols that work today might not be compliant tomorrow. Structure your governance documents to allow flexibility in moving between protocols without requiring a complete restructuring of the foundation.
And here’s the critical part: distribute yield, not principal. If you’re paying out scholarships and drawing down the stablecoin balance itself, you’re not running an endowment. You’re running a spending account. Endowments preserve capital and distribute from income. Set your scholarship payout at a sustainable percentage of annual yield and leave room for volatility in what protocols can deliver year to year.
Custody matters just as much as protocol selection. Keep custody on D’Cent or another qualified custodian with proper insurance and security infrastructure. Don’t leave significant assets sitting in hot wallets or on exchanges. The scholarship recipients don’t care about your yield strategy. They care about getting their money when promised.
Structure this correctly from the start and document your governance. Your foundation needs an investment policy that explains the stablecoin strategy, the risk parameters, and the decision framework for when to shift protocols or pull back to traditional assets. This isn’t something you wing.
A registered investment advisor operating under fiduciary duty should be involved in setting this up. They’re legally required to act in your foundation’s best interest, which means recommending appropriate risk levels and helping you avoid protocols that are too good to be true. Digital Wealth Partners provides that fiduciary-level wealth management and investment advisory guidance. They handle asset custody and financial planning, which matters when you’re trying something unconventional like funding scholarships with crypto yield.
For straightforward situations where you’re setting up one scholarship fund with clear distribution rules, that level of coordination is probably enough. But if you’re running multiple charitable structures, coordinating this with tax strategy, involving family members in governance decisions, and trying to integrate your philanthropic planning with broader estate and succession goals, you need family office oversight.
Digital Ascension Group operates at that level. They’re handling the tax strategy oversight that makes sure your scholarship structure is optimized for deductions. They’re coordinating estate planning so this fits with your multi-generational wealth transfer. They’re providing the concierge-level financial coordination that high-net-worth families need when philanthropy becomes complex.
The opportunity is real. Stablecoin yield can fund more scholarships per dollar of principal than traditional investments. But the execution has to be tight or you’re creating problems instead of solving them.
Contact Digital Ascension Group to learn how our family office services can coordinate your complete financial picture.
