Most people who follow cryptocurrency markets are familiar with the extreme price volatility that defines assets like Bitcoin and Ethereum. Bitcoin, for example, has moved from under $30,000 to over $60,000 and back again within single calendar years. That kind of volatility makes these assets useful as speculative investments but deeply problematic as everyday money. You cannot pay an invoice in an asset that might be worth 30% less by the time the recipient tries to use it.

Stablecoins solve that problem. A stablecoin is a cryptocurrency specifically designed to maintain a fixed value relative to an external reference asset, most commonly the U.S. dollar. The most widely used stablecoins target a value of exactly $1.00, and the vast majority succeed in holding that peg under normal market conditions. You get the speed, accessibility, and blockchain-based programmability of cryptocurrency, without the price swings.

The stablecoin market has grown dramatically. Market capitalization has risen from less than $5 billion in 2020 to approximately $300 billion by 2025, according to data from S&P Global and the World Economic Forum. Transaction volume exceeded $34 trillion in 2025, according to Visa research. More than $2 trillion in stablecoin value now moves on-chain every month. That is a transaction flow comparable to or exceeding legacy payment rails like ACH, and approaching the scale of systems like PayPal. J.P. Morgan Global Research projects the stablecoin market could reach $500 to $750 billion in the coming years, with industry projections from Citigroup extending into the trillions by 2030.

Approximately 99% of all stablecoins in circulation are pegged to the U.S. dollar. The remainder are pegged to other fiat currencies such as the euro, or to commodities like gold. As of early 2026, the two largest stablecoins by market capitalization are Tether (USDT) and USD Coin (USDC), which together account for the overwhelming majority of total stablecoin supply.

Not all stablecoins are structured the same way. There are two primary categories, each using a fundamentally different mechanism to hold its value.

The most common type, and the model used by USDT and USDC, is the fully reserved stablecoin. The issuing company holds real assets in reserve equal to every token in circulation. For every USDC or USDT that exists, the issuer holds one U.S. dollar (or a dollar-equivalent asset) in a bank account, a Treasury securities account, or a money market fund. If a user wants to redeem their stablecoin for actual dollars, the issuer burns the token and releases the underlying reserve asset.

The reserve assets are not typically held as physical cash. They are primarily invested in short-term U.S. Treasury bills, overnight repurchase agreements, and government money market funds — all of which are highly liquid, extremely low-risk, and crucially, interest-bearing. This is the foundation of how stablecoin issuers generate revenue, which we will cover in detail shortly.

The Key Mechanism: When a user or institution deposits $1 million to mint USDC, Circle receives $1 million in actual dollars and issues 1 million USDC tokens. Circle then invests those dollars in short-term Treasury bills earning interest. The user holds 1,000,000 USDC worth exactly $1 each. Circle holds $1,000,000 in Treasuries earning perhaps 4-5% annually. The user gets no interest. Circle keeps the yield. That spread is the business model.

Algorithmic stablecoins attempt to maintain their peg not through reserves of real-world assets, but through automated smart contracts that expand or contract the token supply in response to market price movements. When the price rises above $1, the algorithm mints new tokens to increase supply and push the price back down. When the price falls below $1, the algorithm burns tokens to reduce supply and push the price back up.

The history of algorithmic stablecoins is not encouraging. The most notorious example was TerraUSD (UST), which collapsed in May 2022, losing nearly all of its value within days and triggering an estimated $60 billion in losses across the cryptocurrency ecosystem. The fundamental challenge with purely algorithmic designs is that they can enter self-reinforcing collapse spirals in which falling confidence causes selling, which triggers the algorithm to burn tokens, which reduces supply but fails to restore confidence, which causes more selling. The Wharton Blockchain and Digital Asset Project's 2026 Stablecoin Toolkit describes the failure mode clearly: algorithmic models lack the collateral backstop that gives holders genuine confidence in redemption rights.

Today, the dominant and most trusted stablecoins are all fully reserved models. The U.S. GENIUS Act of 2025, discussed below, specifically governs fully reserved payment stablecoins and does not provide regulatory frameworks that would legitimize uncollateralized algorithmic designs.

Tether is the largest stablecoin in the world by circulation. As of late 2025, USDT circulation exceeded $174 billion, giving it approximately 62-66% of the total stablecoin market. Tether holds approximately $135 billion in U.S. Treasury securities, making it one of the largest holders of U.S. government debt in the world — larger than many sovereign nations. Its total reserves of $181.2 billion exceed its outstanding USDT supply, with roughly $5.6 to $6.8 billion in excess reserves providing an additional buffer.

Tether was founded in 2014 and is operated by iFinex Inc., which also owns the Bitfinex cryptocurrency exchange. It is based offshore, which has historically meant less regulatory transparency than U.S.-domiciled competitors. Tether publishes periodic reserve attestations rather than full independent audits, which has been a source of ongoing scrutiny from regulators and analysts. Despite this, its dominant market position and deep liquidity across global cryptocurrency exchanges have made it the de facto settlement currency of the crypto trading world.

Tether reported over $10 billion in year-to-date net profits through Q3 2025, with full-year projections of approximately $15 billion. These profits are generated almost entirely from interest earned on the Treasury securities backing USDT.

USDC is issued by Circle Internet Group (NYSE: CRCL), a U.S.-regulated financial technology company. As of Q4 2025, USDC had $75.3 billion in circulation, making it the second-largest stablecoin globally. USDC distinguishes itself from USDT primarily through regulatory compliance and reserve transparency. Circle publishes monthly reserve attestations produced by independent accounting firms and maintains its reserves in highly regulated, auditable instruments.

Circle holds USDC reserves primarily in the Circle Reserve Fund (USDXX), a government money market fund managed by BlackRock and registered with the U.S. Securities and Exchange Commission. The fund focuses on short-duration U.S. Treasury securities and overnight repurchase agreements, structured to maintain liquidity sufficient for redemptions within 24 hours. USDC is licensed to operate in 46 U.S. states, the District of Columbia, the European Union, the United Kingdom, Singapore, Canada, Japan, the UAE, and Bermuda.

Circle Internet Group is the publicly traded company (NYSE: CRCL) behind USDC. It went public in June 2025 and is the most transparent stablecoin issuer in the world, making it the clearest case study for understanding how stablecoin businesses generate revenue. Its business model is simpler than most people expect, and more profitable than most people realize.

Circle's primary revenue source is the interest it earns on the assets held in reserve to back every USDC in circulation. The mechanism is straightforward: users and institutions deposit dollars to mint USDC. Circle takes those dollars and invests them in short-term, interest-bearing instruments, primarily U.S. Treasury bills. The USDC holder receives a token worth $1 that they can use to transact, trade, or hold. Circle earns the yield on the underlying asset. The USDC holder earns nothing — stablecoins do not pay interest to holders under the current regulatory framework, and the GENIUS Act explicitly prohibits it.

This reserve income is the dominant revenue driver. In full-year 2025, Circle generated $2.7 billion in total revenue and reserve income, up 64% year over year. Reserve income alone accounted for approximately 95% of that total. In Q3 2025 alone, reserve income was $711 million, up 60% year over year, driven by a 97% increase in average USDC in circulation. Q4 2025 reserve income was $733 million, up 69% year over year.

The sensitivity of this revenue to interest rates is significant. Circle's reserve yield is directly tied to the federal funds rate set by the Federal Reserve. During the period of elevated rates in 2023 through 2025 (rates above 4%), Circle's reserve assets generated substantial yields. If the Federal Reserve were to cut rates materially, the same pool of USDC supply would generate proportionally less interest income. Analysts have noted that a 50 basis point rate cut could reduce annual revenue by hundreds of millions of dollars.

Circle does not sell USDC directly to most end users. Instead, it distributes USDC through a network of partners — primarily cryptocurrency exchanges like Coinbase and Binance — who handle the customer-facing minting and redemption process. In exchange for driving USDC adoption and volume, these distribution partners receive a share of the reserve income Circle earns.

Coinbase, for example, as a founding member of the USDC ecosystem prior to Circle's 2023 assumption of sole USDC governance, historically received a meaningful portion of the interest earned on USDC it distributes. This creates a cost of revenue for Circle: distribution, transaction, and other costs totaled $461 million in Q4 2025, up 52% year over year. Managing these distribution costs, which grow as USDC circulates more widely, is a key profitability lever for the company.

Beyond reserve interest, Circle generates revenue from its developer and enterprise services. The company offers APIs that allow businesses to integrate USDC into their applications, programmable wallets for managing digital assets, and compliance and identity infrastructure for institutions building on blockchain. These services are sold via subscriptions and usage-based fees.

In Q4 2025, other revenue (subscriptions, services, and transactions) was $37 million, up $34 million year over year. While this remains a small fraction of total revenue, it is Circle's fastest-growing segment on a percentage basis and represents the company's strategic path toward making its revenue model less interest-rate-dependent. William Blair analysts have described this segment as the beginning of a shift toward a payments infrastructure model comparable to Visa or Mastercard.

Launched in mid-2025, the Circle Payments Network is an institutional payment infrastructure that allows financial institutions to use USDC for settlement. As of February 20, 2026, 55 financial institutions had enrolled in the CPN with an additional 74 going through eligibility review. The annualized transaction volume through the CPN reached $5.7 billion based on trailing 30-day activity as of February 20, 2026. Circle earns transaction fees as payments flow through this proprietary network, positioning it as a toll-road operator for institutional digital dollar settlement.

Circle's Financial Snapshot (FY2025): Total Revenue and Reserve Income: $2.7 billion (+64% YoY). Reserve Income as share of revenue: approximately 95%. Net Loss: $70 million (primarily due to $424 million in IPO-related stock compensation). Q4 2025 Net Income: $133 million (first quarter of GAAP profitability). Adjusted EBITDA: $584 million for the full year, with Q4 growing 412% year over year. USDC in circulation at year-end: $75.3 billion (+72% YoY).

The mechanics for Tether (USDT) are fundamentally the same as Circle, with two important differences: scale and opacity. Tether is significantly larger, and significantly less transparent.

Tether's primary revenue source is interest on its reserve assets, which by early 2025 included approximately $120 billion in U.S. Treasury securities, placing it among the top 20 holders of U.S. government debt globally. At a 4-5% yield on a reserve base of that size, the annual interest income runs into the tens of billions of dollars. Tether reported over $10 billion in year-to-date net profits through Q3 2025, and projected full-year 2025 profits of approximately $15 billion. By comparison, many major global banks with far larger asset bases generate lower net profits.

A critical distinction between Tether and Circle is that Tether does not share reserve income with distribution partners to the same degree Circle does. Where Circle pays a meaningful portion of reserve earnings to partners like Coinbase, Tether retains the overwhelming majority of its reserve yield, which is a primary reason its profit margins are considerably higher on a per-dollar-of-supply basis.

Beyond Treasury interest, Tether earns from issuance and redemption fees charged to institutional clients who mint or burn USDT directly. It also earns from its reserve management of other assets in its portfolio, which beyond Treasuries includes gold holdings valued at approximately $6.8 billion, Bitcoin holdings, and money market funds.

Stablecoins began primarily as a trading tool within cryptocurrency markets. Traders would hold USDT or USDC between crypto trades rather than converting back to fiat currency, which would be slower and costlier. That use case remains important, but the category has expanded substantially.

Traditional remittance services typically charge 5 to 7% of the transaction value to move money internationally, and the process can take days. Stablecoins can move value across borders in seconds for a fraction of that cost, operating on blockchain networks that function 24 hours a day, seven days a week, without banking holidays. In countries with volatile fiat currencies — Argentina, Nigeria, Turkey, Venezuela — stablecoins have become practical tools for storing value and transacting. A 2024 survey by Visa across Brazil, Turkey, Nigeria, India, and Indonesia found that 47% of crypto technology users in those countries reported using stablecoins for international transfers.

In December 2025, Visa announced that U.S. issuers and acquirers can fully settle Visa transactions using USDC on the Solana blockchain, enabling continuous settlement outside of traditional banking hours. Visa's monthly USDC settlement volume reached an annualized run rate of $3.5 billion by late 2025. This marks the first instance of a mainstream card network using a stablecoin for actual settlement at scale, not merely as a custody asset.

Stripe, the payments processor, now enables U.S. merchants to accept stablecoin payments, converting them to dollars for merchants while charging roughly half the fee it applies to card transactions. Intuit launched a multi-year strategic partnership with Circle to integrate USDC across its platform in 2025-2026.

Stablecoins serve as the primary unit of account and collateral within decentralized finance protocols, where they are used for lending, borrowing, and as liquidity in automated trading pools. Without stablecoins, DeFi participants would be exposed to cryptocurrency price volatility in every transaction. Stablecoins provide the stable baseline against which other assets are priced and exchanged in these permissionless financial systems.

Multinational corporations increasingly use stablecoins for cross-border supplier payments, payroll in countries with restricted banking access, and short-term treasury management. The ability to hold and transfer dollar-denominated value on a 24/7 global network without traditional banking intermediaries reduces cost and settlement time for routine business operations.

For most of the stablecoin industry's history, the regulatory framework governing issuers was fragmented, jurisdiction-specific, and often absent entirely. That changed materially in 2025.

The Guiding and Establishing National Innovation for U.S. Stablecoins Act — known as the GENIUS Act — was signed into law in mid-2025, establishing the first comprehensive federal framework for payment stablecoins in the United States. The law has several key provisions that matter for investors and users alike.

Internationally, the European Union implemented the Markets in Crypto-Assets Regulation (MiCAR), which became applicable to stablecoin issuers in June 2024. MiCAR requires issuers of euro-denominated stablecoins to hold reserves in Europe and subjects them to ongoing supervision. Circle's EURC stablecoin is specifically designed to comply with MiCAR.

The GENIUS Act has broadly been positive for regulated issuers like Circle. It creates clarity that keeps major institutions off the sidelines. It also places Tether, which is incorporated offshore and has historically operated outside U.S. regulatory jurisdiction, at a potential disadvantage as U.S. institutions seek GENIUS Act-compliant stablecoins for their operations.

This article is purely educational, and an honest education on stablecoins requires a clear-eyed discussion of the risks they carry.

A stablecoin is only as reliable as what backs it. For Circle and USDC, monthly attestations from independent accounting firms and a BlackRock-managed reserve fund provide strong transparency. For Tether and USDT, the picture has historically been less clear. Tether publishes attestations rather than full independent audits, which means the verification of its reserve composition is less rigorous. Tether has faced regulatory action in the past, including a 2021 settlement with the New York Attorney General and the CFTC. As of 2025-2026, Tether has significantly improved its disclosures, but it has not yet produced a full independent audit.

Major fiat-backed stablecoins like USDC and USDT have maintained their $1 peg reliably over extended periods, including through severe market stress. However, smaller stablecoins and all algorithmic stablecoins carry meaningful depeg risk. In March 2023, USDC temporarily depegged to approximately $0.87 following the collapse of Silicon Valley Bank, where a portion of Circle's cash reserves were held. Circle ultimately confirmed that its exposure was limited and the peg restored quickly, but the episode demonstrated that even the largest stablecoins are not entirely immune to external shocks.

Stablecoin issuers' revenue is directly tied to the level of interest rates. A Federal Reserve rate cutting cycle reduces the yield on the Treasury bills and money market instruments backing stablecoins, compressing revenue for issuers like Circle and Tether without any corresponding reduction in their operational costs. This interest rate sensitivity is one of the primary risk factors flagged in Circle's SEC filings and analyst coverage.

Circle's distribution model means that a relatively small number of institutional partners drive a large share of USDC circulation. If a major distribution partner like Coinbase were to reduce its promotion of USDC, shift to a competing stablecoin, or face its own business difficulties, it could materially impact USDC circulation and therefore Circle's reserve income.

The GENIUS Act provides greater clarity than existed before, but regulation of stablecoins globally is still actively developing. The European Central Bank published research in March 2026 warning that widespread adoption of dollar-denominated stablecoins in Europe could weaken European monetary sovereignty. China has banned stablecoins entirely. The regulatory patchwork across jurisdictions creates both opportunity (for compliant issuers gaining ground in newly clarified markets) and risk (for any issuer operating in jurisdictions where the rules tighten).

Stablecoins are not a speculative asset class. They are an infrastructure layer — a way of representing dollar-denominated value on blockchain networks that operate faster, more cheaply, and more continuously than traditional banking systems. Their $300 billion market capitalization and $34 trillion in 2025 transaction volume are not the result of speculation. They reflect genuine utility in trading, settlement, payments, and cross-border value transfer.

The business model of stablecoin issuers is also not complicated once you understand the mechanism. Issuers collect dollars, issue tokens, invest the dollars in interest-bearing government securities, keep the yield, and return the principal when tokens are redeemed. At the scale of tens or hundreds of billions of dollars in circulation, even modest interest rates generate billions in annual revenue. The company that does this most transparently and at the largest scale in the publicly traded market is Circle Internet Group (NYSE: CRCL), whose FY2025 results reported $2.7 billion in revenue and $133 million in Q4 GAAP net income.

The passage of the GENIUS Act in 2025 marks a structural turning point. For the first time, the United States has a clear federal framework for stablecoin issuance, reserve requirements, and oversight. That clarity opens the door for banks, payments networks, and technology companies to engage with stablecoins in a regulated capacity — and the early signals from Visa, Stripe, Mastercard, Intuit, and PayPal suggest they are doing exactly that.

Whether stablecoins ultimately become a foundational layer of global finance or remain primarily a tool for cryptocurrency-adjacent activities is a question that 2026 and beyond will answer. What is not in question is that the infrastructure is growing, the institutional adoption is accelerating, and the business models supporting it are generating real, auditable, significant revenue.

_{All sources accessed March 2026. This article is educational only and does not constitute financial advice.}

_{[1] J.P. Morgan Global Research. "What to Know About Stablecoins." jpmorgan.com/insights/global-research/currencies/stablecoins}

_{[2] World Economic Forum. "New Research Answers Fundamental Questions About Stablecoins." weforum.org, February 27, 2026. (Citing Wharton Blockchain and Digital Asset Project, The Stablecoin Toolkit.)}

_{[3] S&P Global Market Intelligence. "Stablecoins Explained: FAQ Guide to Digital Currency." spglobal.com, November 5, 2025.}

_{[4] International Monetary Fund. "Understanding Stablecoins." IMF Departmental Papers 2025, No. 009. imf.org}

_{[5] Brookings Institution. "What Are Stablecoins, and How Are They Regulated?" brookings.edu, updated post-GENIUS Act passage, 2025.}

_{[6] Chainlink. "Stablecoins (2026): Types, Regulation & Use Cases." chain.link/education-hub/stablecoins, January 13, 2026.}

_{[7] PYMNTS.com. "Stablecoins Became Useful in 2025, Can They Become Ubiquitous in 2026?" pymnts.com, December 30, 2025.}

_{[8] Chainstack. "What Is a Stablecoin: Types, Trade-Offs, and How They Run in 2026." chainstack.com, January 30, 2026.}

_{[9] Nexo. "What Are Stablecoins? How USDC and USDT Work in 2026." nexo.com, February 27, 2026.}

_{[10] Wikipedia. "Stablecoin." en.wikipedia.org/wiki/Stablecoin. (Accessed March 2026.)}

_{[11] Circle Internet Group, Inc. "Circle Reports Fourth Quarter and Fiscal Year 2025 Financial Results." circle.com/pressroom, February 25, 2026.}

_{[12] Circle Internet Group, Inc. "Circle Reports Third Quarter 2025 Results." circle.com/pressroom, November 12, 2025.}

_{[13] Wikipedia. "Circle Internet Group." en.wikipedia.org/wiki/Circle_Internet_Group. (Accessed March 2026.)}

_{[14] William Blair. "Circle Internet Group, Inc.: Initiation of Research Coverage." williamblair.com.}

_{[15] Financial Content / Finterra. "The Internet of Value: A Comprehensive Research Feature on Circle Internet Group (NYSE: CRCL)." markets.financialcontent.com, March 25, 2026.}

_{[16] TradingKey. "Circle Internet Group: The Crystallization of the Institutional Pivot and the Trillion-Dollar Stablecoin Horizon." tradingkey.com, March 2026.}

_{[17] Finimize. "Circle's USDC Business Looks Strong, But Rates Still Rule." finimize.com, December 10, 2025.}

_{[18] Bitget Academy. "Circle Revenue Model 2026: How USDC Generates Profit and Income Streams." bitget.com, January 19, 2026.}

_{[19] CryptoNews. "Circle Posts 66% Revenue Growth in 2025 as USDC Adoption Accelerates." cryptonews.net, December 18, 2025.}

_{[20] Stablecoin Insider. "Tether Smashes Records: Over $10B in Profits and $135B Treasury Holdings." stablecoininsider.com, November 5, 2025.}

_{[21] AMBCrypto. "How Does Tether Make Money? Revenue Model." ambcrypto.com, May 28, 2025.}

_{[22] CoinTelegraph / TradingView. "Tether Made $5.2B in 2024: Here's How Stablecoins Make Money." tradingview.com, July 2025.}

_{[23] COREDO. "How Tether and Circle Really Make Money: Invisible $13 Billion Dollar Printing Machine." coredo.eu, August 2025.}

_{[24] Markets.com. "Learn How Tether (USDT) Makes Money." markets.com.}

_{[25] Safeheron. "How Does USDT Make Money?" safeheron.com, May 20, 2025.}

DISCLAIMER

This article is published by Brezco Analytics for informational and educational purposes only. Nothing contained herein constitutes financial, investment, legal, or tax advice. All information is believed to be from reliable sources but is not guaranteed. Past performance is not indicative of future results. Investing in or holding digital assets involves risk, including the possible loss of principal. Always conduct your own due diligence and consult a licensed financial advisor before making any investment decisions. This is not a solicitation to buy or sell any security or digital asset.

© 2026 Brezco Analytics  |  brezcoanalytics.com  |  All Rights Reserved