The Fed is cutting interest rates, and the stablecoin business is not as good as it used to be.
Odaily 精选Sep 18, 2025
On September 18, 2025, the Federal Reserve announced a 25 basis point cut in the federal funds rate to a range of 4.00% to 4.25%. For most industries, this was a signal of easing, meaning lower financing costs and more abundant liquidity. However, for stablecoin issuers, this move marked the official start of the countdown to the era of passive interest rate carry. The turning point of the high-interest rate era has arrived. Since March 2022, the Federal Reserve has raised interest rates 11 times in a row, pushing them to a high of 5.25% to 5.50%. This period of high interest rates opened an unprecedented profit window for stablecoin issuers. Now, with declining inflation, sluggish growth, and a shift in monetary policy, the golden age of the stablecoin industry has come to an end. The countdown to the end of the interest rate carry model. The core profit logic of stablecoins is extremely simple and straightforward: users exchange US dollars for tokens of equivalent value, and issuers invest this money in short-term US Treasury bonds or money market funds, profiting from the interest rate differential. During high-interest rate cycles, this model has produced astonishing returns. Tether is the most striking example. Its reserve audit report for the fourth quarter of 2024 shows that the company generated $13 billion in annual profits, of which approximately $7 billion came from interest earned on Treasury bonds and repurchase agreements, accounting for more than half of the total. Its holdings of U.S. Treasury bonds total $90.87 billion, representing 82.5% of its total reserves. A breakdown of the reserves backing the fiat-denominated Tether tokens in circulation | Source: Tether's official website, audit opinion and comprehensive reserve report. The same situation applies to Circle, another major stablecoin issuer. While it doesn't disclose its full profit breakdown, its reserve disclosures indicate that Circle allocates approximately a quarter of its funds to short-term U.S. Treasury bonds, with the remainder primarily held in money market funds managed by BlackRock. When interest rates remain high, it remains a stable cash machine. However, when interest rates fall, this profit margin is first eroded. Let's do some simple math. For example, Tether's second quarter 2025 audit report shows that its exposure to U.S. Treasury bonds has reached $127 billion. Every 25 basis point drop in interest rates reduces its annualized interest income by approximately $318 million. If, as widely expected, the Federal Reserve implements two or three more rate cuts, totaling 75 basis points, Tether's annual revenue will decrease by approximately $953 million. Circle is in a similarly sensitive position. Its Q2 2025 financial report shows that $USDC's average circulation is $61 billion, with reserve income of $634 million. Approximately 80% of this is allocated to short-term US Treasury bonds. A 25 basis point rate cut would mean a reduction in annual revenue of approximately $122 million; if a cumulative 75 basis point rate cut were implemented, the revenue decline would reach $366 million.The problem is that Circle's adjusted EBITDA for the quarter was only $126 million. If interest rate margins shrink, it could easily slide from profitability to losses. More importantly, there's no symmetry between the loss of interest rate margins and scale expansion. In theory, interest rate cuts should boost market risk appetite, increase trading activity, and potentially expand the circulation of stablecoins. However, this increase is far from sufficient to fill the gap in interest rate margins. For example, at Circle's current funding scale, a 25 basis point interest rate cut would reduce revenue by approximately $122 million. To offset this loss, assets under management would have to increase by 6%, equivalent to an additional $3.7 billion. If interest rates were cut cumulatively by 75 basis points, Circle would need to expand by 21%, or $12.6 billion, to maintain its current return. This asymmetry reveals the fundamental fragility of the interest rate margin model. Once the high interest rate environment subsides, the dividend cycle for this sector will also come to an end. Further pressure comes from the rise of dividend-paying stablecoins. More and more institutions are launching products that distribute dividends to users, cutting into the interest rate margins that originally accrued to issuers. This trend has directly squeezed the profit margins of traditional stablecoins and forced issuers to accelerate their search for new business models. With the spread model from money market funds to global financial service providers reaching its end, stablecoin issuers must undergo a fundamental transformation: from money market funds to global financial service providers. The core strategy is to shift the revenue focus from a single interest rate spread to a broader, more sustainable financial services landscape. Several major players have already begun taking action, each with its own keen sense of smell and exploring different paths. These attempts reveal three distinct transformational directions. Circle: The Didi of the financial world. Circle is attempting a radical transformation, its goal best understood by a straightforward analogy: Didi. Didi doesn't own cars, but it connects drivers and passengers. Similarly, Circle's Circle Payment Network (CPN) doesn't directly handle funds, but instead aims to weave together banks and financial institutions worldwide. Traditional cross-border payments are like the ride-hailing market without Didi: you have to hail a car on the street, unsure when the driver will show up, how much it will cost, or what problems you might encounter along the way. The CPN aims to provide a real-time dispatch system for global capital flows. Circle co-founder Jeremy Allaire said in an interview that they are "building one of the largest financial networks in history." Although this statement sounds a bit exaggerated, it also reflects Circle's ambition.The CPN's design also has its ingenious aspects. Since it doesn't directly hold funds, it doesn't need to apply for a money transmission license in every country. Positioned as a technology service provider, it can invest more resources in product innovation rather than being bogged down by compliance costs. Circle's asset-light approach and network-focused approach have enabled its rapid expansion. However, the core of the financial industry is trust. To gain the recognition of traditional institutions, Circle has enlisted four major global banks—Santander, Deutsche Bank, Societe Generale, and Standard Chartered—as advisors. For CPN, these names are a testament to its credibility. From a profit model perspective, Circle is shifting from profiting from interest rate differentials to collecting tolls. Circle collects a network fee for every transaction passing through CPN. This aligns revenue with transaction volume, rather than interest rates. Even in a zero-interest rate environment, as long as funds flow, there's profit. However, this transformation story is still in its very early stages. CPN only officially launched in May of this year and currently has only four active payment corridors. Despite a waiting list of over 100 financial institutions, revenue has been limited to date. According to Circle's Q2 2025 financial report, the company's total revenue was $658 million, of which $634 million came from reserve interest. Other revenue (including CPN) accounted for only $24 million, or approximately 3.6%. Source: Circle 2025 Q2 Financial Report. In other words, while Circle's "toll" strategy is clear, it will take time for its valuation and stock price to truly support its growth. Even under optimistic estimates, it may take another three to five years for CPN to begin contributing revenue at scale. Until then, Circle remains heavily reliant on interest rate spreads, and the impact of interest rate cuts remains an unavoidable challenge. Longer-term, Circle is aiming to build a complete digital financial infrastructure. In addition to CPN, it is also developing API services for programmatic payments, digital identity, and foreign exchange settlement. According to market analysis, if Circle can attract 10,000 medium and large enterprise customers through these API services, each contributing $50,000 to $150,000 annually, this could generate $500 million to $1.5 billion in annual revenue for Circle. Currently, over 30 fintech companies worldwide have joined the network, ranging from Coins.ph in the Philippines to Flutterwave in Africa, from OpenPayd in Europe to dLocal in Latin America. With each additional node, the value of the entire network grows exponentially. This is the charm of the platform economy. While the initial investment is enormous, once the network effect is established, a competitive moat can be built. Circle's transformation strategy reflects a profound business insight: in the digital age, the most scarce resource is not capital itself, but connections.Tether: The Berkshire Hathaway of the Crypto World. If Buffett built his investment empire with insurance company float, Tether is leveraging the cash flow generated by stablecoins to expand its cross-industry portfolio, early on embarking on a "de-risking" strategy. Tether's strategy can be summed up in one word: contrarian thinking. This proactive search for new profit engines put Tether in a unique position even before the interest rate cut cycle arrived. Tether's investments span nearly every conceivable sector, with energy being a key sector. The company has made a significant global bet on Bitcoin mining, aiming to create a closed-loop system. Bitcoin production requires mining, and trading requires USDT. The issuance of $USDT generates new cash flow for Tether. Gold is another core asset for Tether. The company holds $8.7 billion worth of physical gold in its reserves and has invested over $200 million in Canadian gold mining companies. Tether CEO Paolo Ardoino has even called gold "natural Bitcoin." In traditional financial theory, the price of the US dollar and gold tends to rise and fall in symbiotic relationship. By holding both assets, Tether effectively creates a natural hedge. Regardless of the strength or weakness of the US dollar, at least some of its assets maintain their value. Most surprising to the public was Tether's foray into commodity trade financing, a seemingly "old-fashioned" business that has generated substantial returns for the company. Tether leverages its ample cash flow to provide short-term loans for the transportation of raw materials. According to sources familiar with the matter, this business has already reached billions of dollars. Since traditional banks are generally cautious or even avoid this market, Tether fills the gap and earns a stable interest rate spread. From a portfolio theory perspective, Tether's strategy aligns with Harry Markowitz's Modern Portfolio Theory: don't put all your eggs in one basket. By diversifying its investments across various asset classes and sectors, such as energy, gold, and commodity financing, Tether significantly reduces its reliance on a single business. As a result, in the second quarter of 2025, the company achieved $4.9 billion in net profit, a significant portion of which came from these diversified investments. However, this strategy has also made Tether increasingly complex, making its operations difficult for outsiders to fully understand. Unlike Circle, which emphasizes transparency, Tether's disclosures are often limited, which has deepened market concerns about the security of its assets.A deeper issue is that the core value of stablecoins lies in stability and transparency. However, whether excessive diversification among issuers introduces systemic risks and whether significant losses in a single investment could impact $USDT's stability remains unresolved. Despite this, Tether's strategy demonstrates a pragmatic approach. In an industry rife with uncertainty, preemptive planning and risk diversification are inherently a form of survival wisdom. Paxos: The Foxconn of the Stablecoin World. If Circle aspires to be the Didi of the financial world, and Tether is building the Berkshire Hathaway of the crypto world, then Paxos's role is more like the Foxconn of the stablecoin world. Foxconn doesn't sell its own branded phones, but instead manufactures for giants like Apple and Huawei. Similarly, Paxos prioritizes its own brand, offering financial institutions a comprehensive suite of stablecoin issuance services. This positioning has proven resilient during interest rate cuts. While Circle and Tether worry about shrinking interest rate spreads, Paxos is accustomed to sharing profits with its clients. This seemingly disadvantageous arrangement actually provides a buffer. Paxos's business philosophy can be summed up in one sentence: let professionals do their jobs. PayPal has 430 million users but lacks blockchain technology; Standard Chartered Bank has a global network but lacks stablecoin experience; Kraken understands cryptocurrencies but needs compliant stablecoin products. Paxos aims to be the technical brains behind these giants. In the traditional model, stablecoin issuers bear all technical, market, and regulatory risks and costs. Paxos's OEM model leaves market and brand risks to its clients, while keeping technical and compliance risks within its own control. PayPal's $PYUSD is a prime example. Building its own team would have taken years, hundreds of millions of dollars, and involved navigating complex regulatory approvals. With Paxos, PayPal was able to launch the product in just months, focusing its efforts on user education and expanding its use cases. Even more interesting, Paxos is building a "stablecoin federation." In November 2024, Paxos launched the Global Dollar Network, whose core product is the $USDG stablecoin. This network has received support from numerous prominent institutions, including Kraken, Robinhood, and Galaxy Digital. Standard Chartered Bank has become a reserve management partner, responsible for cash and custody. The concept behind this "federation" is that stablecoins of different brands share the same infrastructure, enabling interoperability, much like different brands of Android phones can run the same apps. This approach represents an evolution of the business model. Paxos is not pursuing single-scale growth, but rather efficiency and ecosystem collaboration.A company's core competitiveness lies not in how many users it has, but in how much value it can create for its partners. Its revenue structure reflects this philosophy: technology licensing fees, compliance service fees, operating and management fees, and a share of reserve revenue create a diversified revenue stream. This allows it to maintain stable cash flow even in an environment of falling interest rates. More deeply, Paxos is attempting to redefine "infrastructure." Traditional financial infrastructure is a pipeline, solely responsible for the flow of funds; the platform built by Paxos simultaneously creates and distributes value. This shift from pipeline to platform may become the prototype for the future of the stablecoin industry. Of course, this model also has its weaknesses. As a behind-the-scenes player, Paxos struggles to establish direct user recognition and brand recognition. However, in an era emphasizing division of labor, this invisibility is actually an advantage: it can serve any potential customer without being perceived as a competitor. The future of stablecoins. The experiments of several major stablecoin companies have already outlined the likely direction of the industry: stablecoins are evolving from a single store of value tool to a broader financial infrastructure. The first direction is payment networks. Stablecoins are gradually becoming a new generation of clearing channels, rivaling traditional networks like SWIFT and Visa. Compared to traditional systems, stablecoin-based payment networks can achieve 24/7 global fund settlement, becoming the underlying infrastructure for cross-border payments. Traditional cross-border payments require multiple layers of intermediaries, each adding time and cost. Stablecoin payment networks, however, allow direct connections between supply and demand of funds. Circle's CPN exemplifies this trend, aiming to build a global, real-time settlement system that allows financial institutions to bypass the correspondent banking model. Building on this foundation, stablecoin companies are expanding into a wider range of financial services. They are beginning to resemble banking, offering lending, custody, and clearing services, using stablecoins as a gateway to traditional finance. Leveraging smart contracts, these services can reduce operating costs, enhance transparency, and increase automation. More importantly, stablecoins are entering corporate treasury and trade scenarios, providing multinational corporations with treasury management, supply chain finance, and international settlement solutions. Stablecoins are thus evolving from a transaction medium for retail users to an enterprise-level payment and financing tool. Asset management is another area of focus. Previously, reserves were almost entirely invested in US Treasuries, which offer security but limited returns. In an environment of falling interest rates, issuers are beginning to explore more diversified allocations, hoping to strike a balance between transparency and returns. Tether's investment in gold and commodities reflects this exploration. By diversifying its reserve portfolio, the issuer attempts to ensure stability while making the reserves themselves a new profit engine.This means that stablecoin companies are no longer content with a marginal role in the financial system. Their goal is to become the core infrastructure of the new financial system. However, whether this ambition can be realized depends on finding a sound balance between technological innovation, regulatory compliance, and business models. A reshuffle is imminent, and interest rate cuts are a survival of the fittest. This has fully exposed the fragility of the interest rate spread model. Profit models relying on interest rate spreads are becoming ineffective, and the stablecoin industry is at the cusp of a major reshuffle. Whether a company can survive depends on the speed of its business model upgrade and the thoroughness of its transformation. For issuers, transformation often means making unfavorable decisions in the short term, but it is crucial for long-term survival. This requires both courage and discernment of future trends. The focus of competition may shift from the scale of issuance to the strength of service capabilities. Those who can truly transform stablecoins into financial service platforms, rather than simply token issuance, will be more likely to gain a foothold in the new landscape. From this perspective, the Federal Reserve's interest rate cut is not just a monetary policy adjustment; it also serves as a stress test for the stablecoin industry. Those companies that can survive this round will occupy a more important position in the future financial landscape; while companies that still rely on a single interest rate spread model may find that their business is indeed not so good. [Beating]
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The Fed is cutting interest rates, and the stablecoin business is not as good as it used to be.
Odaily 精选Sep 18, 2025
On September 18, 2025, the Federal Reserve announced a 25 basis point cut in the federal funds rate to a range of 4.00% to 4.25%. For most industries, this was a signal of easing, meaning lower financing costs and more abundant liquidity. However, for stablecoin issuers, this move marked the official start of the countdown to the era of passive interest rate carry. The turning point of the high-interest rate era has arrived. Since March 2022, the Federal Reserve has raised interest rates 11 times in a row, pushing them to a high of 5.25% to 5.50%. This period of high interest rates opened an unprecedented profit window for stablecoin issuers. Now, with declining inflation, sluggish growth, and a shift in monetary policy, the golden age of the stablecoin industry has come to an end. The countdown to the end of the interest rate carry model. The core profit logic of stablecoins is extremely simple and straightforward: users exchange US dollars for tokens of equivalent value, and issuers invest this money in short-term US Treasury bonds or money market funds, profiting from the interest rate differential. During high-interest rate cycles, this model has produced astonishing returns. Tether is the most striking example. Its reserve audit report for the fourth quarter of 2024 shows that the company generated $13 billion in annual profits, of which approximately $7 billion came from interest earned on Treasury bonds and repurchase agreements, accounting for more than half of the total. Its holdings of U.S. Treasury bonds total $90.87 billion, representing 82.5% of its total reserves. A breakdown of the reserves backing the fiat-denominated Tether tokens in circulation | Source: Tether's official website, audit opinion and comprehensive reserve report. The same situation applies to Circle, another major stablecoin issuer. While it doesn't disclose its full profit breakdown, its reserve disclosures indicate that Circle allocates approximately a quarter of its funds to short-term U.S. Treasury bonds, with the remainder primarily held in money market funds managed by BlackRock. When interest rates remain high, it remains a stable cash machine. However, when interest rates fall, this profit margin is first eroded. Let's do some simple math. For example, Tether's second quarter 2025 audit report shows that its exposure to U.S. Treasury bonds has reached $127 billion. Every 25 basis point drop in interest rates reduces its annualized interest income by approximately $318 million. If, as widely expected, the Federal Reserve implements two or three more rate cuts, totaling 75 basis points, Tether's annual revenue will decrease by approximately $953 million. Circle is in a similarly sensitive position. Its Q2 2025 financial report shows that USDC's average circulation is $61 billion, with reserve income of $634 million. Approximately 80% of this is allocated to short-term US Treasury bonds. A 25 basis point rate cut would mean a reduction in annual revenue of approximately $122 million; if a cumulative 75 basis point rate cut were implemented, the revenue decline would reach $366 million.The problem is that Circle's adjusted EBITDA for the quarter was only $126 million. If interest rate margins shrink, it could easily slide from profitability to losses. More importantly, there's no symmetry between the loss of interest rate margins and scale expansion. In theory, interest rate cuts should boost market risk appetite, increase trading activity, and potentially expand the circulation of stablecoins. However, this increase is far from sufficient to fill the gap in interest rate margins. For example, at Circle's current funding scale, a 25 basis point interest rate cut would reduce revenue by approximately $122 million. To offset this loss, assets under management would have to increase by 6%, equivalent to an additional $3.7 billion. If interest rates were cut cumulatively by 75 basis points, Circle would need to expand by 21%, or $12.6 billion, to maintain its current return. This asymmetry reveals the fundamental fragility of the interest rate margin model. Once the high interest rate environment subsides, the dividend cycle for this sector will also come to an end. Further pressure comes from the rise of dividend-paying stablecoins. More and more institutions are launching products that distribute dividends to users, cutting into the interest rate margins that originally accrued to issuers. This trend has directly squeezed the profit margins of traditional stablecoins and forced issuers to accelerate their search for new business models. With the spread model from money market funds to global financial service providers reaching its end, stablecoin issuers must undergo a fundamental transformation: from money market funds to global financial service providers. The core strategy is to shift the revenue focus from a single interest rate spread to a broader, more sustainable financial services landscape. Several major players have already begun taking action, each with its own keen sense of smell and exploring different paths. These attempts reveal three distinct transformational directions. Circle: The Didi of the financial world. Circle is attempting a radical transformation, its goal best understood by a straightforward analogy: Didi. Didi doesn't own cars, but it connects drivers and passengers. Similarly, Circle's Circle Payment Network (CPN) doesn't directly handle funds, but instead aims to weave together banks and financial institutions worldwide. Traditional cross-border payments are like the ride-hailing market without Didi: you have to hail a car on the street, unsure when the driver will show up, how much it will cost, or what problems you might encounter along the way. The CPN aims to provide a real-time dispatch system for global capital flows. Circle co-founder Jeremy Allaire said in an interview that they are "building one of the largest financial networks in history." Although this statement sounds a bit exaggerated, it also reflects Circle's ambition.The CPN's design also has its ingenious aspects. Since it doesn't directly hold funds, it doesn't need to apply for a money transmission license in every country. Positioned as a technology service provider, it can invest more resources in product innovation rather than being bogged down by compliance costs. Circle's asset-light approach and network-focused approach have enabled its rapid expansion. However, the core of the financial industry is trust. To gain the recognition of traditional institutions, Circle has enlisted four major global banks—Santander, Deutsche Bank, Societe Generale, and Standard Chartered—as advisors. For CPN, these names are a testament to its credibility. From a profit model perspective, Circle is shifting from profiting from interest rate differentials to collecting tolls. Circle collects a network fee for every transaction passing through CPN. This aligns revenue with transaction volume, rather than interest rates. Even in a zero-interest rate environment, as long as funds flow, there's profit. However, this transformation story is still in its very early stages. CPN only officially launched in May of this year and currently has only four active payment corridors. Despite a waiting list of over 100 financial institutions, revenue has been limited to date. According to Circle's Q2 2025 financial report, the company's total revenue was $658 million, of which $634 million came from reserve interest. Other revenue (including CPN) accounted for only $24 million, or approximately 3.6%. Source: Circle 2025 Q2 Financial Report. In other words, while Circle's "toll" strategy is clear, it will take time for its valuation and stock price to truly support its growth. Even under optimistic estimates, it may take another three to five years for CPN to begin contributing revenue at scale. Until then, Circle remains heavily reliant on interest rate spreads, and the impact of interest rate cuts remains an unavoidable challenge. Longer-term, Circle is aiming to build a complete digital financial infrastructure. In addition to CPN, it is also developing API services for programmatic payments, digital identity, and foreign exchange settlement. According to market analysis, if Circle can attract 10,000 medium and large enterprise customers through these API services, each contributing $50,000 to $150,000 annually, this could generate $500 million to $1.5 billion in annual revenue for Circle. Currently, over 30 fintech companies worldwide have joined the network, ranging from Coins.ph in the Philippines to Flutterwave in Africa, from OpenPayd in Europe to dLocal in Latin America. With each additional node, the value of the entire network grows exponentially. This is the charm of the platform economy. While the initial investment is enormous, once the network effect is established, a competitive moat can be built. Circle's transformation strategy reflects a profound business insight: in the digital age, the most scarce resource is not capital itself, but connections.Tether: The Berkshire Hathaway of the Crypto World. If Buffett built his investment empire with insurance company float, Tether is leveraging the cash flow generated by stablecoins to expand its cross-industry portfolio, early on embarking on a "de-risking" strategy. Tether's strategy can be summed up in one word: contrarian thinking. This proactive search for new profit engines put Tether in a unique position even before the interest rate cut cycle arrived. Tether's investments span nearly every conceivable sector, with energy being a key sector. The company has made a significant global bet on Bitcoin mining, aiming to create a closed-loop system. Bitcoin production requires mining, and trading requires USDT. The issuance of USDT generates new cash flow for Tether. Gold is another core asset for Tether. The company holds $8.7 billion worth of physical gold in its reserves and has invested over $200 million in Canadian gold mining companies. Tether CEO Paolo Ardoino has even called gold "natural Bitcoin." In traditional financial theory, the price of the US dollar and gold tends to rise and fall in symbiotic relationship. By holding both assets, Tether effectively creates a natural hedge. Regardless of the strength or weakness of the US dollar, at least some of its assets maintain their value. Most surprising to the public was Tether's foray into commodity trade financing, a seemingly "old-fashioned" business that has generated substantial returns for the company. Tether leverages its ample cash flow to provide short-term loans for the transportation of raw materials. According to sources familiar with the matter, this business has already reached billions of dollars. Since traditional banks are generally cautious or even avoid this market, Tether fills the gap and earns a stable interest rate spread. From a portfolio theory perspective, Tether's strategy aligns with Harry Markowitz's Modern Portfolio Theory: don't put all your eggs in one basket. By diversifying its investments across various asset classes and sectors, such as energy, gold, and commodity financing, Tether significantly reduces its reliance on a single business. As a result, in the second quarter of 2025, the company achieved $4.9 billion in net profit, a significant portion of which came from these diversified investments. However, this strategy has also made Tether increasingly complex, making its operations difficult for outsiders to fully understand. Unlike Circle, which emphasizes transparency, Tether's disclosures are often limited, which has deepened market concerns about the security of its assets.A deeper issue is that the core value of stablecoins lies in stability and transparency. However, whether excessive diversification among issuers introduces systemic risks and whether significant losses in a single investment could impact USDT's stability remains unresolved. Despite this, Tether's strategy demonstrates a pragmatic approach. In an industry rife with uncertainty, preemptive planning and risk diversification are inherently a form of survival wisdom. Paxos: The Foxconn of the Stablecoin World. If Circle aspires to be the Didi of the financial world, and Tether is building the Berkshire Hathaway of the crypto world, then Paxos's role is more like the Foxconn of the stablecoin world. Foxconn doesn't sell its own branded phones, but instead manufactures for giants like Apple and Huawei. Similarly, Paxos prioritizes its own brand, offering financial institutions a comprehensive suite of stablecoin issuance services. This positioning has proven resilient during interest rate cuts. While Circle and Tether worry about shrinking interest rate spreads, Paxos is accustomed to sharing profits with its clients. This seemingly disadvantageous arrangement actually provides a buffer. Paxos's business philosophy can be summed up in one sentence: let professionals do their jobs. PayPal has 430 million users but lacks blockchain technology; Standard Chartered Bank has a global network but lacks stablecoin experience; Kraken understands cryptocurrencies but needs compliant stablecoin products. Paxos aims to be the technical brains behind these giants. In the traditional model, stablecoin issuers bear all technical, market, and regulatory risks and costs. Paxos's OEM model leaves market and brand risks to its clients, while keeping technical and compliance risks within its own control. PayPal's PYUSD is a prime example. Building its own team would have taken years, hundreds of millions of dollars, and involved navigating complex regulatory approvals. With Paxos, PayPal was able to launch the product in just months, focusing its efforts on user education and expanding its use cases. Even more interesting, Paxos is building a "stablecoin federation." In November 2024, Paxos launched the Global Dollar Network, whose core product is the USDG stablecoin. This network has received support from numerous prominent institutions, including Kraken, Robinhood, and Galaxy Digital. Standard Chartered Bank has become a reserve management partner, responsible for cash and custody. The concept behind this "federation" is that stablecoins of different brands share the same infrastructure, enabling interoperability, much like different brands of Android phones can run the same apps. This approach represents an evolution of the business model. Paxos is not pursuing single-scale growth, but rather efficiency and ecosystem collaboration.A company's core competitiveness lies not in how many users it has, but in how much value it can create for its partners. Its revenue structure reflects this philosophy: technology licensing fees, compliance service fees, operating and management fees, and a share of reserve revenue create a diversified revenue stream. This allows it to maintain stable cash flow even in an environment of falling interest rates. More deeply, Paxos is attempting to redefine "infrastructure." Traditional financial infrastructure is a pipeline, solely responsible for the flow of funds; the platform built by Paxos simultaneously creates and distributes value. This shift from pipeline to platform may become the prototype for the future of the stablecoin industry. Of course, this model also has its weaknesses. As a behind-the-scenes player, Paxos struggles to establish direct user recognition and brand recognition. However, in an era emphasizing division of labor, this invisibility is actually an advantage: it can serve any potential customer without being perceived as a competitor. The future of stablecoins. The experiments of several major stablecoin companies have already outlined the likely direction of the industry: stablecoins are evolving from a single store of value tool to a broader financial infrastructure. The first direction is payment networks. Stablecoins are gradually becoming a new generation of clearing channels, rivaling traditional networks like SWIFT and Visa. Compared to traditional systems, stablecoin-based payment networks can achieve 24/7 global fund settlement, becoming the underlying infrastructure for cross-border payments. Traditional cross-border payments require multiple layers of intermediaries, each adding time and cost. Stablecoin payment networks, however, allow direct connections between supply and demand of funds. Circle's CPN exemplifies this trend, aiming to build a global, real-time settlement system that allows financial institutions to bypass the correspondent banking model. Building on this foundation, stablecoin companies are expanding into a wider range of financial services. They are beginning to resemble banking, offering lending, custody, and clearing services, using stablecoins as a gateway to traditional finance. Leveraging smart contracts, these services can reduce operating costs, enhance transparency, and increase automation. More importantly, stablecoins are entering corporate treasury and trade scenarios, providing multinational corporations with treasury management, supply chain finance, and international settlement solutions. Stablecoins are thus evolving from a transaction medium for retail users to an enterprise-level payment and financing tool. Asset management is another area of focus. Previously, reserves were almost entirely invested in US Treasuries, which offer security but limited returns. In an environment of falling interest rates, issuers are beginning to explore more diversified allocations, hoping to strike a balance between transparency and returns. Tether's investment in gold and commodities reflects this exploration. By diversifying its reserve portfolio, the issuer attempts to ensure stability while making the reserves themselves a new profit engine.This means that stablecoin companies are no longer content with a marginal role in the financial system. Their goal is to become the core infrastructure of the new financial system. However, whether this ambition can be realized depends on finding a sound balance between technological innovation, regulatory compliance, and business models. A reshuffle is imminent, and interest rate cuts are a survival of the fittest. This has fully exposed the fragility of the interest rate spread model. Profit models relying on interest rate spreads are becoming ineffective, and the stablecoin industry is at the cusp of a major reshuffle. Whether a company can survive depends on the speed of its business model upgrade and the thoroughness of its transformation. For issuers, transformation often means making unfavorable decisions in the short term, but it is crucial for long-term survival. This requires both courage and discernment of future trends. The focus of competition may shift from the scale of issuance to the strength of service capabilities. Those who can truly transform stablecoins into financial service platforms, rather than simply token issuance, will be more likely to gain a foothold in the new landscape. From this perspective, the Federal Reserve's interest rate cut is not just a monetary policy adjustment; it also serves as a stress test for the stablecoin industry. Those companies that can survive this round will occupy a more important position in the future financial landscape; while companies that still rely on a single interest rate spread model may find that their business is indeed not so good. [Beating]
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