I keep coming back to the same small fact when I think about stablecoins, and it reframes the whole thing. When you hold a dollar-pegged stablecoin, you have handed a company a real dollar and taken back a token that pays you nothing. The company takes your dollar, buys short-term government paper with it, and keeps the interest. That is the business. Everything else, the exchange listings, the reserve attestations, the lobbying, follows from protecting and growing that one flow of money.
The reserve is a money-market fund you do not get paid for
Strip away the branding and a large fiat-backed issuer looks almost exactly like a money-market fund. Customers deposit dollars. The issuer holds those dollars mostly in short-dated Treasury bills, some in repo, some in bank deposits for redemptions. The tokens outstanding are the liabilities, the T-bills are the assets, and the whole thing is engineered to hold a one-to-one peg so a token is always worth a dollar on the way out.
The difference from a normal money-market fund is the part that matters to you. A money-market fund passes the yield to shareholders minus a small fee. A stablecoin issuer passes you nothing and keeps the spread. When short rates are meaningfully above zero, that spread on tens of billions of dollars of float is an enormous, low-cost, recurring revenue stream. The issuer's marginal cost of servicing your balance is close to nothing, because moving tokens is just database writes, and the reserves earn the going rate on the safest assets in the world.
This is why issuer economics track interest rates so tightly. When short-term rates are high, the business prints money. When rates fall toward zero, the same float generates almost nothing and the model gets thin. So an issuer's fortunes are tied less to crypto adoption than to what the central bank is doing to the front end of the curve, which is a strange thing to realize about a company most people file under crypto.
Why they share yield with exchanges and not with you
Here is the part that took me a while to understand. If the float income is so good, why would an issuer ever give a slice of it away? Because distribution is the whole game, and the exchange sitting between you and the token controls distribution.
When a large exchange holds a lot of a stablecoin, either its own balances or its users' balances, that exchange is effectively parking dollars inside the issuer's float. The issuer earns yield on all of it. So the two of them cut a deal: the issuer shares a portion of the interest earned on balances held on or routed through that exchange. The exchange gets a revenue line for doing nothing but holding a token it was going to hold anyway, and the issuer locks in a distribution partner that keeps its coin as the default dollar on that venue.
Notice who is not in that deal. You, the person actually holding the token, get zero. The yield your dollars generate flows to the issuer and gets partially rebated to the platform, and you are the input that makes the whole arrangement work. This is not a scandal exactly. It is disclosed in broad strokes and it is how the business is designed. But it is worth being clear-eyed that when you hold a stablecoin as trading cash, you are lending money interest-free to a company that then splits your interest with your exchange.
Why the rules that look like consumer protection protect incumbents
The obvious question is why nobody just launches a stablecoin that pays holders the yield. Some have tried, and the interesting thing is that the regulation cuts against it. In several major frameworks, a payment stablecoin is explicitly barred from paying interest or yield to holders. The moment a token pays a return, it starts to look like a security or a deposit, and it falls into a much heavier regulatory bucket. So the clean, compliant, spend-anywhere stablecoin is the one that legally cannot share its float with you.
Read that from the incumbent's side. A rule that bans interest-bearing stablecoins removes the single most obvious way a challenger could compete: offering to pay you what the reserves earn. If price is fixed at a dollar and yield to holders is off the table, the only axes left to compete on are trust, liquidity and distribution, and those are exactly the moats the largest issuers already have. The regulation that reads as protecting consumers from risky yield products also happens to freeze the competitive order in place. I do not think that is a conspiracy. It is just what happens when you write a rule that caps the one feature a newcomer would lead with.
How to actually use this
None of this means avoid stablecoins. They are genuinely useful and I hold them all the time as settlement cash. It means hold them with the incentives in view. A few rules of thumb I use:
- Treat idle stablecoin balances as an interest-free loan you are making. If you are sitting on a large balance for weeks, the opportunity cost is real. Compare it against a short T-bill ladder or a money-market fund that actually pays you, and only keep on-chain what you need for near-term trades.
- Read the reserve reporting, not the marketing. You want short-dated Treasuries and repo, disclosed regularly by a credible party. Long-dated or exotic assets, or vague quarterly attestations, are the failure mode that breaks a peg under stress.
- Know your redemption path. Direct redemption is usually gated to large institutional accounts, so as a retail holder your real peg defense is secondary-market liquidity on exchanges. In a panic that liquidity is exactly what thins out, which is when a token trades below a dollar.
- Watch the rate environment. When short rates are high, issuers are flush and pegs tend to be well defended because the reserves are earning plenty. A prolonged move toward zero squeezes the model, and a squeezed issuer is one to watch more carefully.
The practical habit is to separate the token you spend from the dollars you park. When I am scanning venues and sizing trades across exchanges on Blockcircle, the stablecoin is just the rail I move on, not where I want my capital sitting between positions. The peg is the issuer's problem to defend, and the yield on your dollars is already spoken for, so the useful move is to keep only enough on the rail to trade and let the rest earn somewhere that pays you.