As reserve income volatility increases, stablecoin issuers are indeed looking to payment services for a way out. But whether they can fill the gap depends on which issuer—Tether doesn't need to, while Circle is trying but the scale is still far too small.
How Large Is the Fluctuation in Reserve Income?
Stablecoin issuers' reserve income is directly tied to Fed interest rates. In Q2 2026, Circle's reserve yield fell from 4.16% a year ago to 3.5%, a drop of 66 basis points. Even though average USDC circulation grew 25% year-over-year, reserve income only rose 5%, with total revenue of $701 million falling short of the market expectation of $717.5 million.
For Tether, every 25-basis-point rate cut reduces annualized interest income by roughly $318 million. This volatility isn't temporary; it's structural. The rate-cutting cycle isn't over yet, and the 'water level' of reserve income will keep dropping.
Tether vs. Circle: Scale and Nature of 'Other Income'
Tether: Hardly Needs to Fill the Gap
Tether's 2024 profit exceeded $13 billion, and over $10 billion in 2025. Its core logic: a company with about 300 employees holds roughly $122 billion in U.S. Treasuries, around 140 tons of gold, and 96,184 bitcoins.
Tether charges no fees for USDT transfers (zero fee), with a 0.1% issuance fee for direct minting and redemption (subject to minimum thresholds). But the billions of daily peer-to-peer and exchange transfers generate zero revenue for Tether.
This means Tether simply doesn't make money from payment fees. Its diversified income comes from unrealized gains on gold and bitcoin, and equity investments, not payment service charges.
Circle: Working on It, but Scale Is Far from Enough
Circle's 'other revenue' (including transaction fees, payment services, and developer tools) in Q2 2026 was around $42 million, up about 100% year-over-year. But compared to $668 million in reserve income, the gap is more than an order of magnitude.
Circle's business can be divided into three layers:
Digital Assets layer: USDC reserve income (mainstay, over 95% share)
Payments layer: Circle Payments Network (CPN), with annualized TPV reaching $23 billion by end of July, plans to start monetization in H2
Developer infrastructure layer: Arc token and Agent Stack, which already has over 900 paid services, 99.3% settled in USDC
CPN's TPV growth is indeed rapid—from $8.3 billion in Q1 to $14.7 billion in Q2, annualized at roughly $23 billion—but the gross margin of payment services is nowhere near that of reserve income. Reserve income has almost zero marginal cost, while payment operations must bear compliance, settlement, and distribution costs. A significant portion of Circle's 'other revenue' consists of one-time blockchain integration fees, maintenance fees, and token pre-sale accounting income, whose sustainability is questionable.
Can Payment Services Fill the Gap?
Scale comparison: Circle's annualized reserve income is roughly $2.6–2.8 billion. If the reserve yield drops another 100 basis points, annualized reserve income would fall by about $600 million. Even if CPN's annualized TPV reaches $23 billion, at the payments industry's typical net fee rate of 0.3%–1%, the corresponding revenue would be around $70–230 million—not enough to cover the drop in reserve income, let alone become a new growth driver.
Tether is on a different path: it doesn't rely on payment fees, but instead hedges against rate declines through unrealized gains on the reserve assets themselves (gold, bitcoin) and equity investments. In 2024, nearly $5 billion of its profit came from unrealized gains on BTC and gold. Circle cannot take this path, as its reserves are strictly limited to short-term Treasuries and cash-like assets.
Risk reminder: Circle's 'other revenue' growth contains one-off items (such as Arc token pre-sales). If these one-time revenues are valued as 'recurring payment income,' the true contribution of payment services may be overestimated. Circle itself acknowledges that discontinued non-core products contributed less than 1% of total revenue and will have no significant impact going forward.
Verification Checklist
Next time you examine a stablecoin issuer's financial report, break down 'other revenue' like this:
Check QoQ growth stability: If a quarter suddenly spikes, it's likely a one-time integration fee from a new blockchain connection, not sustainable payment income;
Separate reserve income from payment income: Reserve income depends on rates and circulation; payment income depends on TPV and fee rates—the two drivers are completely different, don't mix them up when making judgments;
View Tether and Circle separately: Tether's 'other asset unrealized gains' are not payment income, don't lump them together.
Next steps: Watch for the monetization launch of CPN and the composition disclosure of 'other revenue' in Circle's Q3 earnings. If CPN starts generating meaningful transaction revenue and that revenue shows stable growth for 2–3 consecutive quarters, it will signal that payment services are truly starting to fill the gap. Until then, reserve income remains their lifeblood.
