A 1 percentage point interest rate cut acts like a precision profit drain for stablecoin issuers. How much gets pulled out depends on how many of their reserve assets earn interest and how much of that interest they get to keep.
Let's take the two leading issuers and calculate the exact numbers:
Tether: For every 1 percentage point cut, annual income drops by about $1.4 billion
This is the direct hit. Tether's business model is simple — a user hands over $1 for 1 USDT, and Tether uses that dollar to buy short-term U.S. Treasuries, keeping the interest. By the end of 2025, Tether's exposure to U.S. Treasuries had swelled to around $141 billion. If the Fed cuts rates by 1 percentage point, the annual interest income on that $141 billion pile shrinks by $1.4 billion (source: TipRanks, 2026-02-24). If rate cuts stretch into 2026 or even 2027, the profit numbers will deteriorate even faster.
Circle: For every 1 point cut, reserve income growth gets offset by about 66 basis points from USDC supply growth
Circle's revenue structure is a bit more complicated because it shares interest with distribution partners.
In the second quarter of 2026, Circle's reserve income was $668 million, up 5% year-over-year. Over the same period, the average circulating supply of USDC surged 25% year-over-year — meaning the amount of USDC out there grew by a quarter, but interest income only grew by 5%. The gap was largely driven by falling rates: the average reserve yield fell by 66 basis points year-over-year (source: HTX, 2026-07-29). In earlier quarters, the reserve yield dropped from 4.16% to 3.50%, causing reserve income growth to lag supply growth by 17 percentage points.
Two amplifiers that shrink actual profits further
Distribution costs stay the same, but the income pie gets smaller
For every dollar of reserve income Circle earns, it pays roughly 60 cents to distribution partners like Coinbase. When rates fall, the income pie shrinks, but the proportion paid out for distribution doesn't drop in lockstep. So the net income Circle actually keeps shrinks even more than the headline 1 percent drop in total income.
Rates drop, but stablecoin supply still climbs
This acts as a partial hedge. Even if rates go down, if the circulating supply of USDC or USDT keeps growing (in Q2 2026, USDC supply expanded 19% year-over-year), the growth in "volume" can partly offset the fall in "price." The problem is, both issuers currently rely heavily on Treasury yields as their main income. Other sources — like Circle's payment network fees or Tether's unrealized gains on gold and Bitcoin — still make up a very small slice and won't be enough to fully replace lost interest income in the near term.
A common misconception: Many people think stablecoin issuer profits simply fall in lockstep with each rate cut, but it's not a straightforward one-to-one relationship. Tether's profits include Treasury interest plus unrealized gains on gold and Bitcoin. In 2025, a significant chunk of its profit came from rising gold prices. If gold and Bitcoin prices keep climbing, total profit figures might still hold up even as Treasury interest declines. But unrealized gains are not cash — they're completely different from interest income.
How to check the impact yourself
Next time you see news of a Fed rate cut, you can roughly estimate the hit to a stablecoin issuer's profits: Take the issuer's latest reported "Treasuries / reserve assets" size and multiply it by the size of the rate cut to get a ballpark annual income loss. Then multiply by (1 – distribution cost share) to estimate the rough net profit shrinkage.
If you own Circle stock (CRCL) or follow Tether's finances, compare the "reserve income growth rate" with the "stablecoin supply growth rate" when the next earnings report drops. If the gap between the two keeps widening, it means rate pressure is actually eating into profitability, not just showing up in estimates. The earnings release date often reveals more about the real impact than the rate decision date itself.
