Part 2 of our deep-dive series into the $284 billion stablecoin revolution
Tether made $5.2 billion profit in 2024.¹ They have fewer than 100 employees. Do the math: that's $535 million in profit per employee. Not revenue, just pure profit. Apple generates $2.4 million per employee. Goldman Sachs, $1.3 million. Google, $1.7 million. Tether makes 200 times more. How is this possible?
Welcome to the most elegant business model ever created: the stablecoin float game.
The Beautiful Simplicity of Printing Digital Dollars
Here's how the machine works. You send Tether one dollar. They give you one USDT token. Now here's the magic: Tether takes your dollar and buys US Treasury bills yielding 5.3%. You get zero interest on your USDT. Tether pockets the entire yield. Multiply this by $137 billion in circulation, and you're looking at $7.2 billion in annual revenue with virtually zero marginal cost.
The operational expenses are laughably small. No branches. No loan officers. No credit risk department. Just a handful of developers maintaining smart contracts and a compliance team keeping regulators at bay. The New York Attorney General's investigation inadvertently revealed Tether's 2021 expenses: roughly $60 million annually. Against billions in revenue, that's a 98.5% profit margin.
But here's what makes it truly brilliant: users willingly forfeit the yield. Why? Because USDT provides something more valuable than 5% annual returns—instant global liquidity, 24/7 availability, and escape from local currency devaluation. Turkish users watching the lira collapse 50% annually gladly give up 5% USD yields for stability. Chinese traders bypassing capital controls consider it a bargain.
The US Treasury's Unexpected New Best Friend
Tether now holds $127 billion in US Treasury bills.² Let that sink in. This makes them the 18th largest holder of US debt globally. Even bigger than Germany, bigger than South Korea, approaching the holdings of major sovereign wealth funds. From the US governments perspective, Tether has become an unexpected gift: a massive, reliable buyer of treasury debt that never sells, never demands meetings, never threatens to dump holdings for political leverage.
Circles public filings exposed the entire industry playbook. In Q2 2024, they generated $658 million in revenue from $33 billion in reserves which makes a 7.9% annualized yield.³ Their secret? Laddering treasury maturities to maximize yield while maintaining daily liquidity requirements. They hold 80% in three-month bills, 20% in overnight repos, capturing the yield curves sweet spot while meeting redemption demands. The interest rate sensitivity creates a fascinating dynamic. Circle admitted that each 1% rate decrease costs them $441 million annually.⁴ When the Fed raised rates from zero to 5.5%, stablecoin issuers became the biggest winners outside of banks themselves. But unlike banks, they have no deposit insurance costs, no reserve requirements, no Basel III capital ratios. They're running the banking business model without the banking overhead.
The Algorithmic Graveyard: When Clever Meets Reality
While Tether printed money, algorithmic stablecoins tried to be clever. Terras Do Kwon promised a stablecoin backed by nothing but code and confidence. UST reached $18 billion market cap before reality intervened.⁵ The mechanism seemed elegant: when UST traded below $1, arbitrageurs could swap it for $1 worth of LUNA tokens, reducing UST supply and restoring the peg. When UST traded above $1, the reverse happened.
The fatal flaw? Death spirals are asymmetric. Expansion works fine. Printing more stablecoins when demand rises is easy. Contraction is catastrophic. When UST lost its peg on May 7, 2022, arbitrageurs minted trillions of LUNA tokens trying to profit from the discount, creating hyperinflation that destroyed both tokens in 72 hours.⁶ The protocol spent $3 billion in Bitcoin reserves trying to defend the peg. It wasn't enough.
Iron Finance had already demonstrated this failure mode in June 2021. Their IRON stablecoin was 75% backed by USDC, 25% by TITAN tokens. Seemed safer than pure algorithmic designs. When TITAN dropped from $65 to effectively zero in eight hours, Mark Cubans investment evaporated along with $2 billion in total value.⁷ His tweet afterwards: "I got rugged." Even partial collateralization couldn't prevent the death spiral once confidence cracked.
The Yield Desert Creates an Oasis
The genius of the stablecoin model becomes clearer when you understand the yield desert traditional finance created. Your bank pays 0.5% on savings while lending at 7%. PayPal holds billions in customer balances, paying zero interest while investing in money markets yielding 5%. Visa and Mastercard extract 2-3% on every transaction for moving database entries. Traditional finance trained consumers to expect nothing from their idle cash. Stablecoin issuers simply replicated this model on blockchain rails. But they did it better. No physical infrastructure. No legacy systems. No union negotiations. No FDIC insurance premiums eating 10 basis points. No compliance costs for Know Your Customer rules. The exchanges handle that. The issuers just manage the treasury and collect the spread.
The numbers become surreal at scale. BlackRock, managing $10 trillion, employs 19,000 people. Tether, managing $137 billion, employs fewer than 100. That's 1,400 times more assets per employee. The traditional financial systems complexity with armies of middle managers, compliance officers, and IT staff suddenly looks like deadweight loss.
The Ticking Time Bomb Nobody Discusses
But here's the risk everyone ignores: what happens when rates normalize? The entire stablecoin profit model emerged during the Feds hiking cycle. At zero rates, the business model collapses. No yield to capture means no profit beyond transaction fees. Circle is already preparing, discussing revenue sharing with large holders and expanded payment services. Tether remains silent, accumulating profits while the getting is good.
The concentration risk is staggering. Two companies, namely Tether and Circle, control 85% of the market and hold $180 billion in US Treasuries. They've become systemically important without systemic oversight. No Federal Reserve backup. No deposit insurance. No stress testing. Just the assumption that nothing goes wrong.
Next week in Part 3: The $45 billion Terra collapse that changed everything—how Do Kwon's algorithmic experiment became crypto's Lehman Brothers and why the aftershocks are still reshaping the industry.