How Do Stablecoins Make Money? Crypto Business Models Part 1: Stablecoins

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The crypto market is once again surging, with Bitcoin nearing $69,000—an all-time high—spurred by the approval of Bitcoin spot ETFs. As the total cryptocurrency market cap surpasses $2 trillion, one segment stands out not for explosive price growth, but for its quiet, foundational role: stablecoins.

USDT, the leading stablecoin, recently broke its previous market cap record, exceeding $100 billion. But how do stablecoins—pegged to $1 and designed not to appreciate—generate revenue? And why are they growing amid broader market rallies?

The answer lies in their critical function as a bridge between traditional finance and the volatile crypto world. As demand for cryptocurrencies rises, so does the need for a stable medium of exchange. Stablecoins fulfill this need, serving as a digital dollar for trading, saving, and even daily transactions in unstable economies. Their business models are not speculative—they’re built on real financial mechanics.

Let’s explore how stablecoins work, how they earn money, and why they’re becoming indispensable in the digital economy.

Why Business Models Matter in Crypto

Innovation without a sustainable model fades quickly. The Business Model Canvas—a framework outlining nine key components of a business—highlights why structure matters. Technology drives change, but profitability ensures survival.

Take Apple: the iPhone was revolutionary, but the App Store created an ecosystem that fueled mass adoption. Similarly, in blockchain, infrastructure alone isn’t enough. We need decentralized applications (dApps) that solve real-world problems.

Currently, the crypto industry struggles with mass adoption. Most users still rely on centralized exchanges and must understand wallet management, gas fees, and liquidity pools—barriers that traditional finance avoids. Even dominant sectors like DeFi require technical knowledge, limiting accessibility.

Yet breakthroughs are emerging. Models like Play-to-Earn (P2E) and Move-to-Earn (M2E)—collectively known as X2E (X to Earn)—incentivize real-world actions with crypto rewards. Though facing challenges like token inflation, these models show promise in bringing blockchain into everyday life.

👉 Discover how new crypto business models are reshaping digital finance.

Among all blockchain innovations, stablecoins stand out as the most mature and widely adopted. They’ve cracked the code on utility, trust, and revenue—making them a cornerstone of the crypto economy.

The Core Value of Stablecoins

Stablecoins solve a fundamental flaw in cryptocurrency: volatility. While Bitcoin enables peer-to-peer transactions without banks, its price swings make it unreliable for everyday use. Stablecoins fix this by pegging their value to stable assets—usually the U.S. dollar.

1. Stability in a Volatile Market

Unlike other cryptocurrencies, stablecoins maintain a consistent value. This stability is their primary value proposition. When investors want to protect capital during market downturns—or wait for the right moment to buy—their first move is often to convert holdings into stablecoins.

Market data reflects this demand:

This isn’t just speculation—it’s a vote of confidence in digital dollars.

2. Enabling Crypto Investments

On global exchanges, most trading pairs are crypto-stablecoin, like BTC/USDT. Why? Because fiat currencies like the Korean won or Euro aren’t universally supported across borders due to regulatory differences.

Stablecoins act as a universal trading pair, much like how the U.S. dollar is used in international travel. Their high liquidity ensures smooth trading and price discovery across assets.

For users outside regulated markets, stablecoins are often the only gateway to crypto investing.

3. Alternative Currency in Crisis Economies

In countries with hyperinflation or weak financial systems—like Argentina, Turkey, and parts of Africa—stablecoins offer a lifeline. Citizens use USDT via Binance to preserve value and conduct cross-border transactions quickly and cheaply.

In Africa, the integration of mobile money platforms like M-PESA with USDT shows how stablecoins are evolving beyond speculation into real-world utility.

Even blockchain usage metrics reveal this trend: TRON, despite lacking major DeFi projects, ranks second in Total Value Locked (TVL)—driven almost entirely by USDT transactions.

How Do Stablecoins Make Money?

Stablecoins aren’t free to operate. Issuers generate revenue through three primary models:

1. Collateral Asset Investment

Fiat-backed stablecoins like USDT and USDC hold reserves in cash, government bonds, and other liquid assets. When users deposit $1, they receive 1 stablecoin; the issuer invests that dollar to earn returns.

These investments include:

In 2023 alone, Tether reported $6.2 billion in net profit, largely from rising bond yields and Bitcoin’s price surge. As long as people hold USDT, Tether earns passive income—without taking on excessive risk.

However, diversification is a double-edged sword. While higher-yield assets boost profits, they can undermine trust if perceived as risky.

2. Transaction and Verification Fees

Tether charges fees for:

While individuals rarely interact directly with issuers (most use exchanges), these fees contribute to revenue—especially from liquidity providers and exchanges that issue USDT at scale.

Note: Transferring USDT between wallets incurs only network gas fees, not issuer charges.

3. Lending Services

Tether offers institutional lending, charging interest on crypto-backed loans. For example:

However, such loans carry risk. Celsius’ collapse highlighted the dangers of exposure to volatile counterparties. Critics have also questioned Tether’s loans to Chinese firms with questionable creditworthiness.

Types of Stablecoins

Not all stablecoins work the same way. Understanding their structures reveals key differences in risk and sustainability.

Fiat-Backed (e.g., USDT, USDC)

Each stablecoin is backed 1:1 by cash or cash-equivalent reserves. Users trust that they can redeem 1 USDT for $1 at any time.

Transparency varies:

👉 Compare how different stablecoins maintain their pegs and build trust.

Crypto-Collateralized (e.g., DAI)

DAI is issued by MakerDAO against over-collateralized crypto assets (like ETH). The minimum collateral ratio is 150%—meaning $150 in ETH backs $100 in DAI.

If ETH’s price drops too low, the system automatically liquidates part of the collateral to maintain stability.

DAI’s peg is maintained through:

Algorithmic (e.g., UST)

These stablecoins use code—not collateral—to maintain their peg. Terra’s UST relied on a dual-token system with LUNA:

This system collapsed in May 2022 when confidence waned and large withdrawals triggered a death spiral. The failure proved that trust and collateral matter more than algorithms.

Key Resources Behind Stablecoins

Trust

No amount of code or collateral can replace user confidence. When trust erodes—as with UST—the peg breaks instantly.

Collateral

After Terra’s collapse, markets shifted toward asset-backed stablecoins. Holding safe reserves like Treasuries reassures users that redemption is possible.

Convenience

Users prefer stablecoins with high liquidity and easy access. Most people buy USDT/USDC on exchanges rather than directly from issuers due to identity verification hurdles.

Key Processes That Keep Stablecoins Stable

Arbitrage Trading

Traders exploit small price differences between stablecoins and $1:

But arbitrage only works if trust in reserves remains intact.

Risk Management

Stablecoin issuers must balance:

Tether’s purchase of Bitcoin as reserve assets boosted returns but raised concerns about volatility.

Portfolio Composition

Smart reserve management is key:

Diversification enhances yield while maintaining stability—if done carefully.

What’s Next for Stablecoins?

Regulation and the U.S. Stance

The U.S. has yet to finalize stablecoin regulations. Debates continue:

With USDC’s share dropping after SVB’s collapse—and Tether’s share rising past 70%—U.S. regulators are under pressure to act.

Central Bank Digital Currencies (CBDCs)

Governments are exploring digital currencies to maintain control over money supply. China has tested its digital yuan since 2014; the U.S. is still debating privacy and financial freedom concerns.

While CBDCs could replace cash for large payments, stablecoins may dominate smaller, cross-border transactions—especially in unbanked regions.

FAQ

Q: Do stablecoin issuers really hold enough reserves?
A: Reputable issuers like Circle (USDC) publish regular attestations. Tether does too, though it faces skepticism due to past controversies.

Q: Can stablecoins lose their peg?
A: Yes—USDC briefly depegged during SVB’s collapse. But asset-backed coins usually recover if reserves are solid.

Q: Are stablecoins safe during a bank run?
A: Only if reserves are highly liquid. Overexposure to long-term bonds or risky assets increases failure risk.

Q: Why do people use USDT over USDC?
A: USDT has wider chain support (especially on TRON), lower fees, and broader global adoption—despite regulatory concerns.

Q: Can I earn interest on stablecoins?
A: Yes—through DeFi lending platforms or centralized yield accounts—though risk varies by platform.

Q: Will CBDCs replace stablecoins?
A: Unlikely soon. CBDCs may handle government-level transactions, but stablecoins offer faster innovation and global accessibility.

Stablecoins have evolved from simple pegs to sophisticated financial instruments. They generate revenue through smart investing, fees, and lending—all while providing stability in a chaotic market.

As regulation evolves and CBDCs emerge, stablecoins will likely coexist as essential tools for both investors and everyday users.

👉 Explore how stablecoins are shaping the future of digital money.