Stablecoin issuers make money mainly by pocketing the interest on the cash reserves that back each token. You give them a dollar, they give you a token pegged to a dollar, and they invest your dollar in short-term U.S. Treasury securities. The token you hold pays you nothing. The issuer keeps the yield. On top of that, issuers charge fees when large clients mint or redeem tokens, and some also lend out reserves or stablecoins to institutional borrowers. Tether reported over $10 billion in profit in just the first nine months of 2025.1Tether. Tether Attestation Reports Q1-Q3 2025 Circle brought in $2.7 billion in total revenue for fiscal year 2025.2Circle. Circle Reports Fourth Quarter and Fiscal Year 2025 Financial Results With the total stablecoin market above $320 billion, the math on reserve management has turned into one of the most profitable businesses in finance.
Interest on the Reserves Does the Heavy Lifting
The core model is straightforward. Each token in circulation has a real dollar sitting behind it. That dollar has to go somewhere, and issuers put it in short-term Treasuries, overnight reverse repurchase agreements, and short-term certificates of deposit. Treasuries dominate.3Federal Reserve Bank of New York. Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?
Tether’s direct and indirect exposure to U.S. Treasuries reached roughly $135 billion by the end of the third quarter of 2025.1Tether. Tether Attestation Reports Q1-Q3 2025 Short-term Treasury bills currently yield about 3.6 to 3.7 percent annually.4Federal Reserve Bank of St. Louis. Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity At that yield, $135 billion in Treasuries throws off around $5 billion in interest a year before operating costs. Circle’s reserve income alone hit $733 million in the fourth quarter of 2025.2Circle. Circle Reports Fourth Quarter and Fiscal Year 2025 Financial Results
The whole model breathes with interest rates. When the federal funds rate is high, the spread between what the token pays (zero) and what the reserve earns is wide, and issuers print money. If rates dropped near zero, issuers would have to lean harder on fees. Even a modest yield on a reserve pool measured in the hundreds of billions produces serious cash.
Regulated issuers have to prove those reserves actually exist. Under certain state frameworks, a certified public accountant must verify reserves at least monthly, confirming the total reserve value matches or exceeds the tokens in circulation and that the reserves sit in accounts separate from the issuer’s own funds.5Department of Financial Services. Industry Letter – Guidance on the Issuance of U.S. Dollar-Backed Stablecoins
Fees on Minting and Redemption
Reserve interest dominates the income statement, but issuers also charge for creating and destroying tokens. Retail buyers don’t pay these fees directly. If you buy USDT on an exchange, you’re buying it from another trader. The exchange itself, or a large trading firm, mints new tokens straight from the issuer when demand outpaces supply, and redeems them back for cash when the flow reverses. Both sides of that pipe carry fees.
Tether sets a minimum redemption of $100,000 and charges the greater of $1,000 or 0.1 percent of the transaction.6Tether. Fees Circle handles it differently. Standard redemptions through Circle Mint are free below $2 million per day, and a 0.05 percent fee kicks in above that threshold. Institutional-tier clients pay 0.05 percent on all gross redemptions with no daily cap.7Circle. USDC/EURC Redemption Structure The design is deliberate: discourage constant small redemptions, keep the door open for large flows.
Under the federal framework created by the GENIUS Act, issuers may also pay blockchain network fees on behalf of customers, and they have to publicly disclose all fees tied to buying or redeeming a stablecoin.8Federal Register. Implementing the GENIUS Act for the Issuance of Stablecoins
Lending Reserves and Stablecoins to Institutions
Some issuers push further than Treasuries and lend reserves or stablecoins to institutional borrowers. Tether generates revenue from collateralized loans alongside reserve income and transaction fees. Circle limits its backing assets to cash, Treasury bills, and reverse repurchase agreements, with no lending component. The split reflects a real choice: take credit risk for higher returns, or stay conservative and rely on volume.
Where lending happens, borrowers post collateral worth more than the loan. On major decentralized lending protocols, loan-to-value ratios for stablecoin borrowing generally run from 60 to 90 percent, so borrowers lock up roughly 110 to 170 percent of the loan’s value in crypto assets.9Bank Policy Institute. Stablecoin Risks: Some Warning Bells If the collateral falls below the required threshold, it gets liquidated.
Yields on stablecoin lending shift with market conditions, and supply rates on major DeFi protocols currently sit between about 3 and 8 percent annually. This is real income, and it carries real risk. If a borrower’s collateral loses value faster than the liquidation mechanism can respond, the lender takes a loss. That risk is why some issuers avoid lending entirely.
How Decentralized Stablecoin Protocols Earn Instead
Not every stablecoin has a company behind it. Decentralized protocols like MakerDAO (now rebranded as Sky) let users mint stablecoins by locking crypto collateral in smart contracts. There is no corporate treasury collecting Treasury interest, so the revenue model looks different.
The main mechanism is a stability fee, which works like an interest rate charged to anyone borrowing the stablecoin against their locked collateral. MakerDAO’s stability fee for ETH-backed positions has been as low as 1.5 percent. When a borrower retrieves the locked collateral, they repay the loan plus the accumulated stability fee. That income flows to the protocol’s treasury and, ultimately, to holders of the governance token.
Protocols also collect during liquidations. When a borrower’s collateral drops below the required ratio, the protocol auctions it off to cover the debt and takes a fee on the auction. Some protocols use surplus revenue to buy back and destroy governance tokens, shrinking supply. Seigniorage adds one more layer: when demand rises and the protocol mints new tokens, any value captured above the production cost can flow to the treasury. Algorithmic stablecoins leaned heavily on this mechanism, and several high-profile failures have made the market wary of purely algorithmic designs.
Why Token Holders Get Nothing
If Tether earns $10 billion a year on customer dollars, the fair question is why holders don’t get a share. Part of the answer is now federal law.
The GENIUS Act, enacted July 18, 2025, created the first comprehensive federal framework for stablecoin regulation. It explicitly bars permitted payment stablecoin issuers from paying any interest or yield to token holders in connection with holding, using, or retaining the stablecoin.10Federal Register. GENIUS Act Implementation The OCC’s proposed implementing rule reinforces the prohibition and extends it to foreign issuers registered with the agency.8Federal Register. Implementing the GENIUS Act for the Issuance of Stablecoins The statute also creates a rebuttable presumption that the ban is violated if an affiliated third party pays yield to holders on the issuer’s behalf.
The prohibition exists for a specific legal reason. The SEC’s Division of Corporation Finance has taken the position that “covered stablecoins,” meaning those fully backed by reserves, redeemable at par, and not offering yield, are not securities.11U.S. Securities and Exchange Commission. Statement on Stablecoins The moment an issuer shares interest with holders, the token starts to look like an investment contract or a note, which would trigger registration under the Securities Act. Banning yield keeps payment stablecoins cleanly outside securities law.
Yield-bearing stablecoins do exist and pass some reserve income to holders. They currently represent about 6 percent of the total stablecoin market and face stricter regulatory requirements. The GENIUS Act specifically does not cover them under the permitted payment stablecoin framework. For issuers of traditional stablecoins, the yield prohibition is a feature: it lets them keep all the reserve income and hold a straightforward regulatory status.
What Compliance Costs Take Off the Top
Running a stablecoin operation is not free. Issuers register with FinCEN and comply with anti-money-laundering and know-your-customer rules. Under the GENIUS Act, issuers with total issuance above $10 billion need federal approval; smaller issuers can seek state approval. Either path requires legal teams, transaction monitoring, suspicious activity reporting, and licensing in every jurisdiction where the issuer operates.
The penalties for getting it wrong are steep. Under the Bank Secrecy Act, a willful violation can trigger a civil penalty of the greater of the amount involved (capped at $100,000) or $25,000, and each day a violation continues counts as a separate offense.12Office of the Law Revision Counsel. 31 U.S. Code 5321 – Civil Penalties Criminal prosecution is possible for willful violations.
Monthly attestations pile on more expense. Independent CPAs verify reserve composition, confirm total reserves match or exceed outstanding tokens, and check that regulatory conditions on the reserve assets are met.5Department of Financial Services. Industry Letter – Guidance on the Issuance of U.S. Dollar-Backed Stablecoins For an issuer sitting on $135 billion in reserves, those auditing fees are a rounding error. For a smaller entrant, they’re a real barrier. The revenue model only works spectacularly well when the reserve pool is measured in tens of billions, and that is why the two largest issuers keep pulling further ahead.