You might think the flashy world of decentralized finance, with its exotic yield farms and rapid-fire trading, is where all the big money in crypto gets made. You might picture venture capitalists pouring funds into the next big blockchain. But the truth, as it often is, hides in plain sight. It turns out the quiet giants of the crypto world, the stablecoin issuers, are the ones truly raking in the profits.
- Stablecoin issuers, such as Tether and Circle, are the most profitable entities in the crypto world, capturing a significant majority of daily revenue from various crypto categories.
- These companies generate profits by earning yield on the assets that back their stablecoins, typically investing user deposits in low-risk instruments like U.S. Treasuries, without passing the interest on to holders.
- New competitive pressures and evolving regulations are prompting innovation in stablecoin incentives, with some platforms exploring ways to share value with users, potentially altering the landscape of user rewards.
These issuers, the companies behind tokens like USDT and USDC, aren’t just making a little money. They consistently capture between 60% and 75% of the total daily revenue across major crypto categories. This includes lending platforms, decentralized exchanges (places where you can trade crypto without a middleman), and even the basic blockchain infrastructure itself. It’s a staggering share, making stablecoins crypto’s most profitable corner.
Consider Tether, the company behind USDT, the largest stablecoin by market cap. Its CEO, Paolo Ardoino, recently shared some eye-opening numbers. Tether is on track to pull in $15 billion in profit this year. What’s more, they are doing it with an almost unbelievable 99% profit margin. This kind of efficiency places Tether among the world’s most profitable companies, especially when you consider their employee count.
So, how do they manage such impressive feats? The business model is rather straightforward. It centers on earning yield from the assets that back their stablecoins. When you buy a stablecoin, you’re essentially giving the issuer your fiat currency, usually U.S. dollars. They then take those dollars and invest them.
Major issuers like Tether and Circle (the company behind USDC) typically hold these user deposits in low-risk, yield-generating instruments. Think U.S. Treasuries, which are government bonds, and various cash equivalents. The interest earned from these investments is substantial. And here’s the key: the issuers keep that interest. They do not pass it on to the stablecoin holders.
The Law Steps In, But Competition Stirs
This practice of retaining interest has even been written into U.S. law. The GENIUS Act, signed in July, explicitly prohibits permitted payment stablecoin issuers from paying interest or yield to their holders. The idea behind this legislation is to treat these payment stablecoins more like digital cash. They are not meant to be deposit-bearing accounts or investment products.
It makes sense, in a way. If a stablecoin is supposed to be a dollar-for-dollar digital representation, adding interest complicates its role. It could blur the lines between a simple payment tool and a regulated financial product. The law aims for clarity, even if it means stablecoin holders don’t get a cut of the profits.
However, the crypto world rarely stays static. Increased competition within the stablecoin sector is already pushing some players to try different approaches. They want to share value with users. USDe, for example, has quickly risen to become the third-largest stablecoin. It has put pressure on the established players by offering yield through its synthetic dollar model. This is a different beast entirely, creating a dollar-pegged asset through various DeFi strategies.
Then there’s Coinbase, a major crypto exchange. They have started rewarding users simply for holding USDC on their platform. Currently, they offer an attractive 3.85% annual percentage yield (APY). This move is clever. It technically gets around the GENIUS Act’s restrictions. How? Because Coinbase, a third-party platform, provides the yield. The stablecoin issuer, Circle, is not directly paying the interest.
This signals a potential shift in how value could be distributed within the stablecoin ecosystem. It shows that even with legal restrictions, there are creative ways to incentivize users. The market always finds a way, doesn’t it?
The Future of Stablecoin Incentives
The stablecoin landscape is clearly evolving. The dominant players, who have enjoyed immense profitability, now face new challenges. They must decide how to respond to these competitive pressures. Will they stick to their tried-and-true model, or will they innovate?
Tether, for its part, is not standing still. The company is actively working to raise more capital. This capital will help expand USAT, its U.S.-regulated, dollar-backed complement to the existing USDT. This move suggests a desire to broaden its reach and offer a product that might appeal to a different segment of the market, perhaps one seeking more regulatory clarity.
It will be fascinating to watch how stablecoin issuers continue to compete for users. Will we see more platforms like Coinbase offering yield? Will new synthetic models gain even more traction? The push for new incentives and differentiation is only just beginning. The quiet giants of crypto might have to get a little louder to keep their crown.
