The Silent Money-Making Giants: Tether and Circle
Stablecoin issuers like Tether (USDT) and Circle (USDC) have quietly dominated the crypto landscape with a deceptively simple business model:
- Deposit Conversion: Users deposit $1 to receive 1 stablecoin token
- Reserve Investment: Issuers invest the dollar reserves in low-risk assets (primarily U.S. Treasuries)
- Interest Capture: Earn yield from these investments (currently ~5% on short-term Treasuries)
- Profit Retention: Keep nearly 100% of generated interest (users receive zero interest)
This model generated staggering profits in 2024:
- Tether: $6.56 billion profit
- Circle: $1.89 billion profit
Key advantages over traditional banks:
👉 No physical branches or costly infrastructure
👉 Zero interest payments to users
👉 Minimal compliance overhead compared to banking regulations
The Modern Alchemists: Ethena's High-Risk Yield Strategy
Emerging players like Ethena Labs take a radically different approach with their synthetic dollar (USDe):
Delta-Neutral Hedging Mechanism
- Accepts crypto collateral (e.g., ETH/stETH)
- Opens equivalent short positions on perpetual futures
Profits from:
- Staking yields (4-6%)
- Positive funding rates (when markets are bullish)
Why It's Controversial
- Yield Source: Essentially taxes traders' leverage positions
- Sustainability Questions: Relies on perpetual bull market conditions
- Counterparty Risks: Dependent on CEX stability and smart contract security
The Coming Revolution: Interest-Bearing Stablecoins
New models like Mountain Protocol's USDM are challenging the status quo by:
- Sharing Treasury yield with users
- Creating regulatory gray areas (could stablecoins become securities?)
- Forcing incumbents to reconsider zero-interest policies
FAQ: Understanding Stablecoin Economics
Q: Why don't users demand interest on stablecoin deposits?
A: Convenience outweighs lost yield—traders value 24/7 liquidity and volatility protection more than ~5% APY.
Q: How long can high profits last?
A: Dependent on Federal Reserve rates. If rates drop to 2021 levels (~0%), issuer profits would collapse.
Q: What's the biggest threat to stablecoin issuers?
A: Regulatory action classifying them as money transmitters (requiring banking licenses) or securities issuers.
Q: Why don't banks compete directly?
A: Traditional finance moves slowly—JPMorgan's JPM Coin processes $1B/day vs. USDT's $50B+ daily volume.
The Future: A $2.8 Trillion Market?
Bernstein predicts explosive growth by 2028, driven by:
- Global payment adoption
- DeFi integration
- Emerging market dollar alternatives
👉 The stablecoin race is just beginning—winners will balance compliance, yield innovation, and user trust in ways we're only starting to imagine.
Disclaimer: This content is for informational purposes only and does not constitute financial advice.