The aggregate capitalization of the sector exceeds $200 billion, with USDT and USDC concentrating the majority of that liquidity. Behind this digital payments infrastructure exists a business model that operates on logic distinct from that of DeFi protocols or exchanges. The yield generated by the underlying reserves constitutes the primary source of revenue for issuers, not transaction fees or exchange spreads.
When a user acquires a dollar-backed stablecoin, they deposit fiat capital with the issuer. That capital does not remain idle. Issuers invest the reserves in high-liquidity, low-risk assets: short-term U.S. Treasury bills, government money market funds, and reverse repurchase agreements backed by sovereign debt. The yield on these instruments constitutes the issuer’s operating income.
The equation is straightforward: total reserves multiplied by the yield rate on underlying assets equals reserve income. An issuer with $100 billion in reserves that obtains an annual yield of 3.5% generates $3.5 billion in annual revenue. This cash flow does not depend on transaction volume processed or crypto market volatility.
The stablecoin holder receives a token that maintains a redemption value of $1. The reserve yield does not transfer to the user because the product design does not contemplate participation in investment income. The user acquires a redemption right, not a share in the underlying asset.
The stablecoin business exhibits a direct correlation with Federal Reserve interest rate policy. During the 2022-2024 rate hike cycle, Treasury bill yields exceeded 5%, which boosted issuer revenues. In the 2026 rate environment, with the reference range at 3.50%-3.75%, reserve yields have contracted.
Circle reported for the second quarter of 2026 a reserve income of $668 million, a 5% year-over-year increase. This growth is explained by the expansion of USDC in circulation to $73.3 billion, a 19% year-over-year increase. Circulation growth offset the 66-basis-point decline in the reserve yield rate. Circle’s total revenue for the quarter reached $701 million.
Tether, for its part, recorded a net operating profit of $1.5 billion in the second quarter of 2026, an increase of nearly 50% from the previous quarter. The scale of USDT, with a circulation exceeding $184 billion, amplifies the impact of reserve yields.
A distinctive aspect of Tether’s model is the accumulation of a reserve surplus that exceeds the total liability represented by USDT in circulation. At the end of the first quarter of 2026, this surplus reached an all-time high of $8.23 billion. By the end of the second quarter, the surplus declined to $4.11 billion. This decrease reflects unrealized losses on bitcoin and gold positions held on the balance sheet.
The reserve surplus functions as a capital buffer that absorbs fluctuations in the value of non-traditional reserve assets. Tether maintains exposure to cryptoassets and precious metals as part of its reserve portfolio, which introduces balance sheet volatility. This structure differs from Circle’s model, whose reserves are concentrated in cash and cash equivalents with a lower risk profile.
The market has begun to produce instruments that transfer reserve yields to token holders. These products, such as sUSDS from Spark or tokenized money market funds, operate on a logic distinct from that of payment stablecoins. The holder receives a variable yield that reflects the rate of the underlying assets, but the token does not maintain a fixed $1 redemption value at all times.
Payment stablecoins prioritize redemption value stability and immediate liquidity. Tokenized funds prioritize yield transfer to the investor, with a pricing mechanism that reflects the accrued interest value. The user who demands a stablecoin for transactions or as a short-term store of value does not seek exposure to reserve yields.
RLUSD, Ripple’s stablecoin, operates under a regulatory framework that restricts reserve composition to assets of maximum liquidity: Treasury bills with maturity ≤ 3 months, government money market funds, and reverse repos. As of August 2026, RLUSD held reserves of $1.98 billion against a circulation of $1.87 billion. This surplus of approximately $110 million reflects an overcollateralization policy that does not seek to generate additional yield, but rather to guarantee redemption capacity under any scenario.
The reserve-yield revenue model introduces a structural dependency of issuers on Fed monetary policy. The profitability of the business does not derive from technological innovation or operational efficiency, but from an interest rate spread that the issuer does not control. In a near-zero rate environment, reserve income approaches zero and the business model collapses.
This dependency explains the revenue diversification strategy that issuers have begun to implement. Circle has developed Arc, a layer-2 blockchain, as an alternative revenue source. Tether has expanded its investments in bitcoin mining, artificial intelligence, and energy markets. These initiatives seek to reduce exposure to the interest rate cycle.
Open USD proposes transferring reserve yield to distribution partners, not to the issuer. This approach modifies the competitive dynamics of the sector by aligning the incentives of integrators with circulation growth.
The reserve model exposes issuers to liquidity risks in mass redemption scenarios. If a significant proportion of holders request redemption simultaneously, the issuer must liquidate reserve assets under adverse market conditions. Concentration of reserves in Treasury bills reduces this risk, but does not eliminate it.
Transparency in reserve composition constitutes a critical factor for market confidence. Circle publishes monthly reserve reports with audits by external firms. Tether publishes quarterly attestation reports. RLUSD subjects its reserves to monthly audits by certified public accountants. The difference in frequency and scope of these reports affects the risk perception of each issuer.
