Long article》How do stablecoin issuers make money? Is there so much profit in U.S. bonds and interest rates?

This article explores how stablecoins such as USDT and USDC generate billions of dollars in revenue by investing reserves in U.S. Treasury bills, which are closely tied to the U.S. Federal Reserve interest rate. If interest rates drop to zero, their profitability could plummet. This article is from an article written by @threesigmaxyz and is compiled, compiled and written by zhouzhou, BlockBeats. (Summary: Circle launches stablecoin "refund protocol" to solve payment pain points? Pros and Cons at a Glance) (Background supplement: Italian Economy Minister: The potential impact of US stablecoins on Europe far exceeds tariffs, calls for the promotion of digital euro confrontation) Cryptocurrency's Shift to Stability Initially, Bitcoin was seen as an alternative to traditional currencies, a decentralized, borderless, censorship-resistant form of money. However, due to its high volatility (high price fluctuations), gradual evolution into a speculative asset and store of value, and the high cost of blockchain transactions, it is no longer suitable as an everyday payment instrument or a stable store of value. This limitation has led to the rise of stablecoins. Stablecoins are designed to maintain a fixed value, often pegged to the US dollar, providing transaction stability and efficiency that Bitcoin cannot achieve. The development of the crypto ecosystem reflects a pragmatic shift. Although Bitcoin's initial ideal was to replace traditional currencies, the need for stability has led to the widespread use of stablecoins (often backed by traditional assets) as the backbone of the entire ecosystem. These stablecoins act as a bridge between the real-world traditional financial market and the crypto ecosystem, promoting the popularity and application of cryptocurrencies on the one hand, and raising questions about the ideal of crypto decentralization on the other hand. For example, stablecoins like Tether (USDT) and USD Coin (USDC) are issued by centralized institutions with reserve assets held in traditional banks, which is considered to make some kind of compromise between idea and reality. Over the years, the adoption rate of stablecoins has risen significantly. In 2017, their total market capitalization was less than $3 billion, and by March 2025, it had grown to about $228 billion. Stablecoins now account for about 8.57% of the entire crypto market and are an important tool for trading, cross-border payments, and hedging in times of market turmoil. This growing trend highlights the role of stablecoins as a key bridge between traditional financial markets and the crypto world. A chart from Coinglass clearly shows the trend of steadily and substantially increasing the total market capitalization of major stablecoins from the beginning of 2019 to date. What is a stablecoin? A stablecoin is a cryptocurrency that aims to keep its value stable by pegging its price to some kind of external asset, such as fiat currency or commodity. For example, Tether (USDT) and USD Coin (USDC) are both stablecoins pegged 1:1 to the US dollar. The goal of stablecoins is to offer the advantages of digital currencies (such as fast, borderless transactions on the blockchain) without the volatility of Bitcoin's price. Stablecoins strive to maintain price stability by holding reserve assets or employing other mechanisms, making them more suitable as everyday trading instruments or as a store of value in the crypto market. In fact, most mainstream stablecoins achieve price stability through a collateral mechanism, that is, each stablecoin issued needs to be backed by an equivalent reserve asset. To ensure the stability and credibility of stablecoins, clear regulation is required. At present, the United States has not yet introduced comprehensive federal legislation, mainly relying on state-level rules and some proposals under consideration; The EU has implemented strict reserve and audit requirements through the MiCA framework; Asia has diversified regulatory strategies: Singapore and Hong Kong impose strict reserve requirements, Japan allows stablecoins to be issued by banks, and China has largely banned stablecoin-related activities. These differences reflect the local trade-off between "innovation" and "stability". Despite the lack of a globally harmonized regulatory framework, the use and popularity of stablecoins is steadily growing year on year. Why are they being issued? As mentioned earlier, the original purpose of stablecoins was to provide users with a reliable digital asset for payment or as a store of value pegged to major global currencies, particularly the US dollar. But they were not issued for the good good, but as a highly profitable business opportunity, and Tether was the first company to identify and take advantage of this opportunity. Tether launched USDT in 2014, becoming the first stablecoin, and also pioneered an extremely profitable business model, especially from the perspective of "profit per capita", one of the most successful projects in history. The business logic is very simple: Tether issues 1 USDT for every $1 it receives, and users sell the corresponding amount of USDT when they redeem the dollar. The US dollars received are invested in safe short-term financial instruments (such as US Treasuries), and the resulting proceeds go to Tether. Understanding how stablecoins make money is key to grasping the economic logic behind them. Although the business model of stablecoins looks very simple, Tether has no control over its main source of revenue – the interest rates set by central banks, especially the US Federal Reserve. When interest rates are high, Tether can make significant profits; But when interest rates are low, profitability drops significantly. At the moment, the high interest rate environment is very favorable for Tether. But what happens if interest rates fall again in the future, even close to zero? Are algorithmic stablecoins also affected by interest rate fluctuations? Which type of stablecoin is likely to perform better in such an economic environment? This article will explore these issues further and analyze how stablecoin business models can adapt to the changing macro view economic environment. 2. Types of stablecoins Before analyzing the performance of stablecoins under different economic conditions, it is crucial to understand how different types of stablecoins operate. While the common goal of all stablecoins is to maintain a stable value pegged to real-world assets, each reacts differently to changes in interest rates and the overall market environment. Below we will introduce several main types of stablecoins, their mechanisms, and how they react in response to different economic changes. Fiat-backed stablecoins Fiat-backed stablecoins are currently the most well-known and widely used type of stablecoin, essentially "tokenizing" the US dollar in a centralized way. Their mechanism of operation is very simple: every time a user deposits $1, the issuer mints 1 corresponding stablecoin; When a user redeems USD, the issuer sells the corresponding token and returns the same amount of USD. The monetization model of fiat-backed stablecoins is largely hidden behind the scenes. Issuers invest users' deposits in a variety of short-term and secure financial instruments, such as treasury bonds, secured loans, cash equivalents, and sometimes more volatile assets, such as cryptocurrencies (such as Bitcoin) or precious metals. The income generated by these investments constitutes the main source of income for the issuer. However, high returns come with no small amount of risk. One of the major ongoing challenges is compliance. Many governments have come under intense scrutiny of fiat-backed stablecoins on the grounds that they are essentially issuing "digital currencies" and therefore subject to strict financial regulations. While most stablecoin issuers have successfully coped with regulatory pressures without experiencing significant business disruptions, significant challenges still occur. A notable example is...