Tether and Circle's "Regulatory Arbitrage" Business Model
Tether (USDT):
2024 Profit: Approximately $13 billion, almost entirely from interest income on a $120 billion U.S. Treasury investment portfolio.
Meanwhile, USDT holders receive no income from the business.
Circle (USDC):
2024 Revenue: $1.7 billion, of which 99% is interest income from USDC reserves (approximately 80% of reserves are invested in short-term U.S. Treasuries, and 20% are held in banks).
Similarly, Circle retains all Treasury income, and USDC users receive zero income.
Analysts have long pointed out that this income model is essentially a "narrow bank" structure with "no interest expenditure," representing a textbook case of regulatory arbitrage.
Future Trends
In light of the above context, a reasonable speculation is that the next step in the evolution of stablecoins is to transition from being purely a store of value to becoming financial products that offer both stability and yield, known as "yield-bearing stablecoins." JPMorgan previously predicted that yield-bearing stablecoins would account for approximately 50% of the stablecoin market share by 2030 (currently, this figure is 6%).
Based on the source of income, yield-bearing stablecoins can be divided into three models: derivatives model, RWA model, and DeFi yield model. Taking @levelusd as an example, let's see how its yield model operates.
According to the latest official article, Level's slvlUSD generates income by allocating $71.58 million in reserves to selected lending markets. Specifically:
46% allocated to Morpho Steakhouse USDC vault
47% allocated to Aave v3 USDC market
A small amount allocated to Aave USDT market
Aave: Interest rates stabilized after rising from May to July.
Morpho: Vault yield increased, with a 7-day APY reaching 6.84%.
Level provides competitive sustainable returns for slvlUSD holders through a cross-platform allocation strategy, continuously monitoring market utilization and dynamically adjusting allocations. It is worth mentioning that $lvlUSD can only be minted through USDC or USDT, meaning that Level compensates for the yield gap that USDC or USDT holders originally lacked.
My personal conclusion is that yield-bearing stablecoins are likely to become an important complement to traditional stablecoins, but replacement will still take time.
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