Lying down to earn ends! The Federal Reserve (FED) cuts interest rates, striking stablecoins, as the $13 billion profit empire faces collapse.

On September 18, 2025, the Federal Reserve announced a reduction in the federal funds interest rate by 25 basis points to 4.00%-4.25%. For most industries, this is a loose signal, indicating lower financing costs and more abundant liquidity. However, for stablecoin issuers, this cut means the countdown to the easy profit margin model officially begins, marking the end of a golden era that once generated annual profits of $13 billion.

Countdown to the End of the Interest Rate Spread Model: Each 25 basis point Rate Cut Costs Tether $318 Million

(Source: Tether)

The core profit logic of stablecoins is extremely simple and direct. Users exchange US dollars for equivalent tokens, and the issuer invests this money in short-term US Treasury bonds or money market funds, earning money through interest rate differentials. During periods of high interest rates, the returns of this model are astonishing.

Tether is the most intuitive example, with its Q4 2024 reserve attestation report showing the company's annual profit reaching $13 billion, of which approximately $7 billion comes from interest on U.S. Treasury securities and repurchase agreements, accounting for more than half of the total profit. It holds U.S. Treasuries amounting to $90.87 billion, representing 82.5% of total reserves.

The situation is similar for another major stablecoin issuer, Circle. Although the complete breakdown of profits has not been disclosed, from the reserve disclosure, Circle allocates about a quarter of its funds to short-term U.S. Treasury bonds, with the remaining portion primarily held in money market funds managed by BlackRock.

Interest Rate Cut Effect: A Cruel Mathematical Game

(Source: Circle)

We can do a simple calculation. Taking Tether as an example, according to its second-quarter 2025 verification report, the company holds US Treasury securities amounting to $127 billion. For every 25 basis points decrease in the interest rate, its annual interest income would decrease by approximately $318 million.

If, according to the general market expectations, the Federal Reserve will implement 2-3 more rate cuts in the future, totaling a reduction of 75 basis points, then Tether's annual revenue will decrease by approximately 953 million dollars.

Circle's situation is similarly sensitive. Its Q2 2025 financial report shows that the average circulation of USDC is $61 billion, with reserve income of $634 million. About 80% of the funds are allocated to short-term U.S. Treasury bonds. A reduction of 25 basis points means an annual income decrease of about $122 million; if cumulative rate cuts reach 75 basis points, the revenue decline will amount to $366 million.

The problem is that Circle's adjusted EBITDA for the quarter is only $126 million. Once the interest rate spread narrows, it is likely to slide from profit into loss.

The Transformation Path of the Three Giants: From Pseudo-Money Funds to Global Financial Service Providers

After the interest rate spread model reaches its limits, stablecoin issuers must undergo a fundamental transformation, shifting from being money market fund-like to becoming global financial service providers. The core idea is to shift the focus of revenue from a single interest rate spread to broader and more sustainable financial services.

Circle: Making Finance as Convenient as Didi

Circle is attempting a complete transformation, which can be understood through an intuitive analogy: Didi. Didi does not own cars, yet it can connect drivers and passengers; similarly, the Circle Payment Network (CPN) built by Circle does not directly handle funds but aims to weave together banks and financial institutions around the world.

From the perspective of profit models, Circle is shifting from earning interest spread to charging tolls. For every transaction through CPN, Circle can collect network fees. This links revenue to transaction volume rather than relying on interest rates. Even in a zero-interest-rate environment, as long as there is capital flow, there is income.

However, this transformation story is still in its very early stages. According to Circle's Q2 2025 financial report, the company's total revenue was $658 million, of which $634 million came from reserve interest, while other revenue (including CPN) was only $24 million, accounting for about 3.6%.

Tether: The Berkshire Hathaway of the Crypto World

If Buffett built his investment empire using the float of insurance companies, Tether is laying out an investment map across industries with the cash flow generated by stablecoins, starting early with the layout of "de-risking".

Tether's investment scope is broad, covering almost all imaginable areas:

Energy: A large-scale bet on Bitcoin mining, forming a closed loop.

Gold: Holding $8.7 billion worth of physical gold in reserves and investing in Canadian gold mining companies.

Commodity Trade Financing: Providing short-term loans for raw material transportation

By diversifying investments across different assets and industries such as energy, gold, and commodity financing, Tether has significantly reduced its reliance on a single business. As a result, in the second quarter of 2025, the company achieved a net profit of 4.9 billion dollars, a substantial portion of which came from the contributions of these diversified investments.

Paxos: The Foxconn of the Stablecoin World

If Circle aims to be the Didi of the financial world, and Tether is building the Berkshire Hathaway of the crypto world, then Paxos's role is more like that of Foxconn in the stablecoin world. Foxconn does not sell its own branded smartphones but provides OEM services for giants like Apple and Huawei; similarly, Paxos does not prioritize its own brand but offers a complete set of services for financial institutions for stablecoin issuance.

This positioning shows resilience during a rate-cutting cycle. While Circle and Tether were concerned about narrowing interest rate spreads, Paxos had already become accustomed to a revenue-sharing model with its clients. This seemingly disadvantageous arrangement has actually built a buffer for it.

PayPal's PYUSD is a typical case. With the help of Paxos, PayPal was able to launch the product in just a few months, focusing its efforts on user education and scenario expansion.

The Future of the Stablecoin Industry: A Reshuffle is Imminent, Survival of the Fittest

The interest rate cut has completely revealed the vulnerability of the interest rate spread model. The profit-making method relying on the interest rate spread is failing, and the stablecoin industry has also reached a critical point of reshuffling. Whether companies can survive depends on the speed of updating their business models and whether the transformation is thorough enough.

Stablecoins are transitioning from a singular value storage tool to a broader financial infrastructure:

Payment Network: Become a new generation clearing channel, benchmarked against traditional networks such as SWIFT and Visa.

Financial services: Providing services such as lending, custody, and clearing, using stablecoin as an entry point into traditional finance.

Asset management: Try more diversified allocations to find a balance between transparency and returns.

From this perspective, the Federal Reserve's interest rate cuts are not just adjustments to monetary policy; for the stablecoin industry, it also acts as a stress test. Those companies that can withstand this round will occupy a more important position in the future financial landscape; while companies that still rely on a single interest rate spread model may find that their business is indeed not so easy to operate.