Stablecoin Users Forgo Billions in Interest as Rates Rise

A major part of the crypto industry's largest business relies on interest that never reaches stablecoin holders.

Suppose you hand $1,000 to a custodian who deposits it in a secure account earning about 4% annually. They give you a digital token worth $1,000 that you can cash in at any time.

A year later, your token is still $1,000 even though the underlying money has been accruing interest.

In simple terms, this is one of the core business models supporting the stablecoin market.

According to DeFiLlama, the stablecoin market totals roughly $308 billion. A three-month US Treasury bill yields around 4.20% today. If that entire sum generated 4% annually, it would amount to about $12.3 billion in yield per year.

Most holders of traditional stablecoins do not automatically get that yield.

Consider USDC. Circle states that the stablecoin is backed by cash and highly liquid assets such as short-term Treasuries and overnight repos. USDC's terms explicitly state that holders do not receive the interest generated by those reserves. This is not a deception but a feature of the product.

It resembles a checking account that pays no interest. The bank can earn on your deposits, but you forgo interest for liquidity and convenience.

Stablecoins provide roughly the same trade-off but on blockchain rails. The advantage is the ability to move dollars globally, trade crypto, settle payments, and transfer value 24/7.

This trade-off becomes far more apparent when interest rates are elevated.

At 0.5%, few concern themselves with the lost yield. At 4% or above, the figures grow immense.

This does not imply that stablecoin issuers pocket $12 billion in pure profit. The reality is more complex — reserves are not all invested at the same rate, and issuers have operating costs.

The broader point remains: holding a stablecoin means selecting a digital dollar while forfeiting the interest those dollars could earn in exchange for liquidity and crypto-native utility.

With over $300 billion locked in stablecoins, that small trade-off has turned into a substantial industry.