The Federal Reserve (FED) has started cutting interest rates, is the era of stablecoin issuers "lying down to earn" coming to an end?

As the US Federal Reserve begins to cut interest rates, the golden age of stablecoin issuers relying on interest rate spreads to profit may have come to an end, and how to maintain high profits has become the key to the survival of the industry. This article is based on an article written by Sleepy.txt and was compiled, compiled, and written by BlockBeats. (Synopsis: Fed FOMC cut interest rate by 1 yard in September, Powell shouted "tariff impact is limited", bitcoin rose above 117300) (Background supplement: Fed sounding tube: Bauer's last battle, how to carry tricky economic and political pressure) On September 18, the Fed announced that it would cut the federal funds rate by 25 basis points to 4.00%~4.25%. This is an easy signal for most sectors, meaning lower funding costs and more liquidity. But for stablecoin issuers, this one-size-fits-all approach means that the countdown to the profit-to-earn spread model has officially begun. The inflection point of the era of high interest rates has arrived. Since March 2022, the Fed has raised interest rates 11 times in a row, pushing interest rates to a high of 5.25~5.50%. This cycle of high interest rates has opened an unprecedented window of profit for stablecoin issuers. Now, with the decline in inflation, sluggish growth, and the shift in monetary policy, the golden stage of the stablecoin industry has also come to an end. Countdown to the end of the spread model The core profit logic of stablecoins is extremely simple and straightforward, users exchange US dollars for equivalent tokens, and the issuer invests this money in short-term US bonds or money market funds, making money on interest spreads. In a cycle of high interest rates, the returns of this model are staggering. Tether is the most visual example, with its fourth-quarter 2024 reserve certification report showing that the company's full-year profit reached $13 billion, of which about $7 billion came from interest on Treasuries and repurchase agreements, accounting for more than half of total profits. It holds $90.87 billion in U.S. Treasuries, or 82.5% of its total reserves. Reserve details of Tether tokens that support fiat denomination in circulation | Source: Tether official website forensics opinion and comprehensive reserve report The same is true for Circle, another major stablecoin issuer. Although the full profit composition is not released, from reserve disclosures, Circle allocates about a quarter of its funds to short-term U.S. Treasuries, and the rest is mainly deposited in money market funds managed by BlackRock. It's also a stable cash machine when interest rates remain high. However, when the rate cut comes, this profit margin will be cut first. We can simply do the math. In the case of Tether, according to its Q2 2025 forensics report, the company's exposure to U.S. Treasuries has reached $127 billion. Every 25 basis point drop in interest rates reduces its annualized interest income by about $318 million. If, as widely expected, the Fed makes another 2-3 rate cuts in the future, for a total of 75 basis points, Tether's annual revenue will be reduced by about $953 million. Circle's situation is equally sensitive. Its second-quarter 2025 financial report shows that USDC has an average circulation of $61 billion and reserve income of $634 million. About eighty percent of the funds are allocated to short-term U.S. Treasuries. A 25 basis point rate cut implies an annual revenue reduction of about $122 million; A cumulative 75 basis point rate cut would result in a revenue decline of $366 million. The problem is that Circle's adjusted EBITDA for the quarter was only $126 million. Once the spread yield contracts, it is likely to slide from profit to loss. More importantly, there is no symmetrical relationship between the loss of spreads and the expansion of scale. In theory, a rate cut will increase market risk appetite, increase trading activity, and the circulation scale of stablecoins may also be amplified. But this growth is far from enough to fill the gap in interest rate spreads. In the case of Circle, a 25 basis point cut in interest rates would reduce revenue by about $122 million at the current funding scale. To compensate for this loss, management would have to increase by 6 percent, equivalent to an additional $3.7 billion. A cumulative 75 basis point rate cut would require Circle to expand by 21%, or $12.6 billion, to maintain its current level of earnings. This asymmetry reveals the fundamental fragility of the spread model, and once the high interest rate environment recedes, the dividend cycle of this track will come to an end. More pressure comes from the rise of dividend-paying stablecoins, and more and more institutions are starting to launch products that can pay dividends to users, cutting off a portion of the spread income that originally belonged to issuers. This trend directly compresses the profit margins of traditional stablecoins, and also forces issuers to accelerate the search for new business models. From quasi-monetary funds to global financial service providers After the spread model has come to an end, stablecoin issuers must complete a fundamental transformation from a quasi-monetary fund to a global financial service provider. The core idea is to shift the focus of income from a single spread to broader, more sustainable financial services. Several giants have already begun to act, their sense of smell has always been keen, and they have each explored different paths. From these attempts, we can see three very different directions of transformation. Circle is attempting a radical transformation, and its goal can be understood by an intuitive analogy: Didi. Didi does not own cars, but can match drivers and passengers; Circle's Circle Payment Network (CPN) also doesn't handle money directly, but wants to weave together banks and financial institutions around the world. Traditional cross-border payments are like a travel market without Didi, where you need to hail a car on the street, not knowing when the driver will come, how much it will cost, or what problems you will encounter on the road. What the CPN needs to do is to provide a real-time scheduling system for global capital flows. Jeremy Allaire, co-founder of Circle, said in an interview that they are "building one of the largest financial networks in history." This statement sounds exaggerated, but it also reflects Circle's ambitions. The design of the CPN also has its ingenuity, since it does not hold the funds directly, it is not necessary to apply for a money transmission license in each country. Since it is positioned as a technology service provider, it can invest more resources in product innovation instead of falling into compliance costs. Asset-light and network-heavy allows Circle to expand rapidly. However, the core of the financial industry is trust. To gain recognition from traditional institutions, Circle invited four of the world's largest banks, Santander, Deutsche Bank, Société Générale and Standard Chartered, to act as advisors. For CPN, these names are endorsements. From the perspective of profit model, Circle is shifting from eating spreads to collecting tolls. For every transaction that passes through CPN, Circle charges a network fee. This allows revenue to be tied to trading volume, rather than relying on interest rates. Even in a zero-interest rate environment, there is a profit as long as there is a flow of money. However, this transformation story is still very early. CPN only went live in May this year and currently has only 4 active payment channels. Although there are more than 100 financial institutions waiting in line for access, revenue has been limited so far. According to Circle's financial report for the second quarter of 2025, the company's total revenue was $658 million, of which $634 million came from reserve interest, and other income (including...