Stablecoin issuers run one of the most profitable business models on earth: they mint digital dollars on-chain against fiat deposits, then invest those deposits in cash equivalents like U.S. Treasuries, earning a risk-free spread. No lending, no credit risk, no branch network. Tether, with roughly 300 employees, is expected to post $10 billion in profit in 2025.
That fat margin attracts predators. A partner at Blockchain Capital recently outlined a three-way tug-of-war among issuers, applications, and users. The firm has invested in issuers (Tether, Circle, Paxos) and apps (Aave, Phantom, Polymarket, RedotPay), giving it a ringside view.
Apps Grab a Cut: Coinbase Set the Precedent
Most users never interact directly with issuers; they access stablecoins through wallets, exchanges, or DeFi protocols. Those apps control user relationships and demand a share. Coinbase's deal with Circle is the classic example: Coinbase reportedly kept 100% of interest income from on-platform USDC holdings and 50% from off-platform USDC. The logic: “We distribute your asset and lock in user behavior—share the profit or we route users to a competitor's stablecoin.”
Today, large exchanges, DeFi protocols, and wallets wield similar bargaining power. They can set default stablecoins and switch them with a single product decision, effectively controlling capital flows.
Bypassing Issuers: In-House Stablecoins and White-Label Solutions
Some apps go further by launching their own branded stablecoins or “wrappers,” cutting issuers out entirely. Aave's GHO and PayPal's PYUSD (issued via Paxos) are examples. Paxos offers an “issuer-as-a-service” white-label model, letting PayPal earn float without building infrastructure.
Still, apps can't fully escape issuer dominance. USDC and USDT enjoy powerful network effects as the reserve assets of DeFi and the base trading pair for most markets. Branded stablecoins often lack liquidity and integration, making them less attractive to users. Moreover, white-label stablecoins aren't neutral—a competitor of PayPal may refuse PYUSD because it funds a rival. Circle faced similar friction early on; Binance, wary of Circle's ties to Coinbase, defaulted to USDT. Today, USDT trading volume on Binance is about 5 times that of USDC.
User Pressure: Yield Expectations Reshape the Game
In developed markets where risk-free rates hover around 4%, U.S. users naturally ask why their digital dollars earn nothing. When one wallet offers yield and a competitor doesn't, users migrate. This forces apps to share part of the float with end users, which in turn pressures them to negotiate harder with issuers. Without a revenue split, an app can't pay interest without bleeding money. The model of “issuers keeping all the yield” is increasingly untenable in those markets.
But in many emerging markets, the core value of dollar stablecoins is hedging against local inflation and capital controls. A user trying to prevent their savings from halving each year won't obsess over a 4% yield. Tether, with the largest overseas user base, benefits from this dynamic—demand for yield is far less pressing there.
Blockchain Capital's bet: users will likely emerge as the ultimate winners, capturing most of the profit as the tug-of-war continues.