Why does USDT earn more than banks? Unveiling the "earning secret" of stablecoins and their fatal shortcomings.

There are always people who ask: "Since USDT has issued over 100 billion, is it just as profitable as central banks printing money?" This statement is half true — stablecoins can indeed earn money passively, but they can never become a "digital dollar." Today, let's uncover the underlying logic of stablecoins: why can they earn billions annually yet remain the "shadow" of sovereign currency? And why are algorithmic stablecoins always under regulatory scrutiny?
1. Stablecoins are not "currencies"; they are merely "dollar vouchers".
First, let's understand a core difference: central bank currency issuance is a "sovereign action," while stablecoin issuance is a "custodial business."
The Federal Reserve prints 100 USD, relying on the credit of the United States, backed by taxes, military, and GDP, without needing to mortgage any assets. However, when USDT issues 1 USD, it must have 1 USD (or equivalent government bonds) deposited in the bank — the USDT you hold is essentially "I have deposited 1 USD in Tether, and this is the proof."
This determines the crux of stablecoins: their value is pegged to sovereign currencies, and the issuer does not have the power to "print money out of thin air." Just like when you store your bag at the supermarket, the storage tag, no matter how much it looks like money, cannot be used as a salary — stablecoins are the "storage tags" of the crypto world, and they can be spent because everyone recognizes the US dollars behind them, not Tether as a company.
2. The "lying down earning trick" of stablecoins: it's not seigniorage, it's the "interest rate difference magic".
Although they do not have the right to issue coins, stablecoin issuers earn just as much as banks. Last year, Circle, the parent company of USDC, reported earnings of 1.4 billion USD solely from their stablecoin business, and the secret lies in the "interest spread":
When you buy 100 USDC, it is equivalent to lending 100 USD to Circle.
Circle uses this money to buy US Treasury bonds (approximately 4.5% annualized), earning 4.5 USD in a year;
But it gives you an interest of 0—this $4.5 in between is pure profit.
Based on the current circulation of USDC at 32 billion, it can earn 1.44 billion USD passively in a year, which is more than many listed companies. This does not include transfer fees and on-chain Gas fee sharing—these revenues seem like a "seigniorage tax," but in essence, they are "funding intermediary service fees," which is no different from the interest spread of banks.
The central bank's seigniorage is "profit without cost": producing a $100 bill costs less than $1, yet it can exchange for $100 worth of goods, which is the "ultimate power" of sovereign currency. Stablecoins can never learn this because they do not dare to pull a fast one - once the collateral is insufficient, they will collapse like UST.
3. Algorithmic stablecoin: Want to flip the table, but being pressed down and rubbed on the ground.
Why are algorithmic stablecoins always criticized as "pyramid schemes"? Because they want to bypass sovereign currencies and set their own rules.
Ordinary stablecoins are backed by USD, while algorithmic stablecoins rely on "smart contracts to adjust supply and demand." For example, if an algorithmic coin aims to peg to 1 USD: when the price rises to 1.2 USD, it automatically mints new coins to sell; if it drops to 0.8 USD, it destroys old coins to raise the price. It sounds great, but its fatal flaw is - there is no sovereign backing, it solely relies on market confidence.
This is a major taboo: sovereign nations will never allow "orphaned" currencies to challenge the status of fiat currency. The value anchor of algorithmic stablecoins is not the US dollar, which is equivalent to a de facto possession of "independent currency sovereignty." In the eyes of regulators, this is no different from "counterfeiting money." The collapse of UST in 2022 appeared to be due to a mechanism flaw, but at a deeper level, it wanted to break away from the US dollar system to play "its own game," ultimately being crushed by the joint forces of the market and regulators.
Now you understand: the "anti-sovereign" attribute of algorithmic stablecoins is not an advantage, but a death knell. As long as countries still want to control the issuance of currency, these types of coins will always be "key targets for regulation and crackdown."
4. The "ceiling" of stablecoins: will never become "digital fiat currency"
Some people believe that "if the scale of stablecoins is large enough, it can force the government to recognize them," which is a typical overthinking.
The core power of sovereign currency is "coercion": the US government stipulates that "taxes must be paid in USD" and China stipulates that "salaries cannot be paid in USDT." Stablecoins do not have this ability — if you use USDT to buy milk tea, the boss can refuse to accept it; but if you use RMB, he does not dare to reject it.
More importantly, the "monetary policy power": The Federal Reserve can adjust the economy through interest rate hikes and cuts, such as the monetary easing in 2020 to rescue the market and the interest rate hikes in 2023 to combat inflation. However, stablecoins can only follow the US dollar. When the US dollar's interest rates rise, the yield on its collateralized treasury bonds increases; when the US dollar is printed, it can only passively follow the increase in supply. In short, stablecoins are the "puppets" of sovereign currencies, forever lacking autonomous decision-making power.
5. The only exception: the "digital fiat currency" personally intervened by the state.
If stablecoins have a future, it must be the "national version" - such as the digital renminbi in China and the CBDC that the United States may launch.
These "central bank digital currencies" are the true digital sovereign currencies: they are issued based on national credit, without the need for collateralized assets; they can be used directly to pay for utilities and taxes; the government can use them to precisely regulate the circulation of currency (for example, by directing subsidies to small and medium-sized enterprises). At that point, they are no longer "stablecoins," but rather a digital form of sovereign currency.
And now USDT and USDC are essentially "private financial instruments". You can make money, but if you want to shake the foundation of sovereign currency? There is still a distance of 100 Federal Reserves.
To be honest in the end.
The existence of stablecoins is a "transitional product" for the cryptocurrency world to connect with fiat currencies. It can help you transfer easily within the coin circle and earn some interest, but don't fantasize that it can overturn anything – the real monetary power will always be held by sovereign states.