Stablecoins Explained: Why These Firms Are Worth Billions

Crypto Robot

Stablecoin companies are quietly dominating the crypto industry — but how do they actually make billions? In this video, we break down exactly how stablecoins like Tether (USDT), Circle (USDC), and MakerDAO (DAI) generate massive profits while powering the backbone of the digital economy.  We’ll dive deep into how stablecoins work, how companies profit from reserves, interest rates, and transaction fees, and why Wall Street and DeFi protocols rely on them. You’ll also learn about the risks behind these centralized giants — including regulatory battles, reserve transparency, and competition from CBDCs and DeFi stablecoins.  Are stablecoins the safest bet in crypto or the biggest hidden risk? 🤔 Watch until the end to find out — and comment below which stablecoin you trust most: USDT, USDC, or DAI?  👉 Subscribe for daily alpha on crypto market trends, bold Bitcoin predictions, and altcoin gems that could 10x your portfolio! – https://www.youtube.com/channel/UCpjN8bNE-CoAgpfMatghM9g  📧 Email: cryptorobothelp@gmail.com  💰 Affiliate Links  Sofi Checking & Savings – Get $25 free ➝ https://www.sofi.com/invite/money?gcp=16a53d0f-b4b2-441d-9100-cfb506305260&isAliasGcp=false  Sofi Investing – Free $25 in stock ➝ https://www.sofi.com/invite/invest?gcp=ab31edd8-701e-4109-9225-51b41e35d246&isAliasGcp=false  Coinbase Exchange – Earn up to $300 BTC ➝ https://coinbase.com/join/YPUQLCY?src=referral-link  Tracking Tools – CoinGecko | CoinMarketCap  Trading Tools – Get $15 off TradingView ➝ https://www.tradingview.com/pricing/?share_your_love=cryptonextsteps  #Stablecoins #Crypto #Bitcoin #Ethereum #DeFi #USDT #USDC #DAI #Blockchain #CryptoNews #CryptoInvesting #CryptoAnalysis #DigitalAssets #Fintech #StablecoinExplained

Transcript

00:00welcome back to the deep dive we're the show that tries to cut through the noise on the big topics

00:09in finance in tech and well especially where those two collide today we're tackling something

00:16that sounds maybe a bit dry but honestly it's probably one of the most profitable corners the

00:21whole digital economy we're talking stable coins i mean just look at the sheer scale you got tether

00:26circle even newer players like paypal with pyusd these aren't just side projects anymore are they

00:32no not at all they're huge multi-billion dollar operations we're talking what a combined market

00:37cap north of 150 billion dollars now they're absolutely central to how liquidity moves around

00:43the globe digitally exactly but here's the thing that always gets me the kind of paradox we need to

00:48unpack today they don't print money like a central bank they're not making wild bets like some crypto

00:53assets they just issue these digital ious right pegged one-to-one usually to the u.s dollar so

00:58our mission our deep dive today is to figure out how they do that what's the actual mechanism how do

01:03they get these enormous valuations often beating traditional banks just by promising stability that

01:08paradox is really the perfect starting point because to get why they're so successful you have

01:13to stop thinking coin and start thinking well function stable coins are the bridge they're the

01:19essential connection point the on-ramp and the off-ramp linking the let's face it often chaotic

01:24crypto world with the established traditional financial system and if you want the secret to

01:29the billions they're making don't just see them as digital cash think of them more like super

01:35efficient crypto native money market funds that's closer to the mark money markets yeah they take the

01:41dollars users give them they invest those dollars in safe boring yield generating stuff and they keep the

01:46interest all while providing this 2047 liquidity layer that honestly the whole digital asset world

01:52relies on now it's that double act liquidity provider and asset manager that's really the core of it

01:57all right let's dig into that shadow bank idea then because that sounds like where the real money

02:01making happens the basic promise is trust isn't it you give them a dollar you get a token worth a dollar

02:06back usdt usdc same idea one-to-one backing that's the fundamental promise convertibility you should

02:14always be able to get your dollar back but how they hold those reserves that's the clever part

02:19isn't it they're not just sitting on piles of physical cash earning nothing absolutely not that

02:23wouldn't be much of a business the reserves are strategically invested we're talking cash equivalents

02:28reverse repo agreements sometimes but the big one especially right now is short-term u.s treasury bills

02:36t-bills right t-bills yeah basically lending money short-term to the u.s government about as safe an

02:42asset as you can find anywhere on the planet precisely and the business model the genius of

02:47it is all about the yield they earn on those reserves it's a float like an insurance or payment

02:52processing think about it simply you give circle say a hundred dollars for a hundred usdc tokens you get

02:59this digital dollar you can send anywhere instantly circle takes your hundred dollars and invests it

03:04probably in those t-bills we mentioned and they pocket the interest earned on your hundred dollars

03:09while you're using their token okay that's the aha moment right there and when you scale that up

03:15let's use the example you mentioned the one from the sources say circles holding 30 billion dollars

03:20in reserves that's a huge float that basically stays stable because people are always using usdc right

03:25it churns but the overall level tends to stay high and if they're investing that 30 billion dollars

03:30mainly in treasuries and let's say treasuries are yielding what roughly five percent right now

03:35thanks to the fed could be around that yeah depending on the exact mix and duration so 30 billion

03:41dollars times five percent this 1.5 billion dollars in potential annual profit just from holding the

03:47reserve safely exactly relatively low risk profit too because the underlying assets are so safe 1.5

03:53billion dollars yeah just for being a settlement layer and managing assets passively it's kind of

03:58staggering isn't it yeah and that's how they operate like these digital shadow banks that's

04:02the term often used yeah because they perform bank-like functions taking deposits facilitating

04:07payments but crucially without the same regulatory burden right tell me more about that regulatory

04:12difference what are they not doing that a normal bank has to oh it's a long list think about a

04:17traditional bank they have huge overheads billions in fdic insurance premiums in the u.s strict capital

04:25reserve requirements set by central banks meaning they have to hold a lot of non-earning capital

04:30plus branches legacy it systems exactly massive operational costs stable coin issuers for the

04:37most part sidestep a lot of that they're leaner tech first operations so they can capture that yield

04:42from the reserves much more efficiently so it's partly technological efficiency but also regulatory

04:49arbitrage exploiting the gaps in the current rules that's certainly a big part of the story

04:54especially historically the rules are catching up but for a long time they've operated in this gray

04:58area and that efficiency combined with the current high interest rates is why you see these eye-popping

05:05profit numbers speaking of profits let's break down the income streams because the interest on reserves

05:09is the big one now but it's not the only way they make money is it the source has mentioned three main

05:14ways that's right the reserve interest is definitely number one especially lately yeah interesting come on

05:20reserves you mentioned it's turbocharged by the fed raising rates t-bulls just pay out more now and the

05:26numbers are wild tether reported was it over four billion dollars in profit in 2023 that was the

05:34reported figure yes primarily from managing their reserves it's an incredible number incredible because

05:39it actually beat the net income of some pretty well-established traditional u.s banks that really

05:46highlights the efficiency difference we were just talking about it does but it also highlights a

05:50vulnerability doesn't it how so well that profitability is super sensitive to interest rates

05:55if the fed starts cutting rates significantly that four billion dollar profit figure could shrink really

06:01fast it relies heavily on the current macro environment good point so diversification of income matters

06:07what's the second stream number two is transaction fees and spreads this is more about the plumbing function

06:12okay how does that work they charge fees usually small ones when large customers mint new tokens

06:17basically creating them by depositing fiat or when they redeem tokens swapping them back for fiat currency

06:23so for the big players moving money in and out exactly think about a big trading firm or a crypto exchange

06:29they might need to mint say 500 million dollars worth of usdc to facilitate trading or manage their own liquidity

06:35right if the issuer circle in this case charges even a tiny fee like point zero five percent or four one percent

06:42well on five hundred million dollars that's instantly two hundred and fifty thousand dollars or half a million dollars in revenue

06:48wow okay and remember trillions of dollars are settling using these stable corns every year across all the exchanges and

06:54defy protocols so even tiny fees on that massive volume add up significantly it helps cover operational costs compliance things like that

07:02it makes sense volume makes up to the small percentage and the third stream number three is partnerships and integrations this is more strategic

07:09like deals with exchanges exactly deals with the big crypto exchanges where stable coins like usdt or usdc are often the main currency used for trading pairs

07:19deals with defy protocols that need stable assets for lending or liquidity pools and increasingly partnerships with traditional payment companies

07:28think visa mastercard paypal integrating stable coin technology into their networks these deals cement the stable coins role as

07:37essential infrastructure and often come with revenue sharing or licensing fees she put those three together huge interest income high volume

07:45transaction fees and strategic partnership revenue and suddenly those multi-billion dollar valuations make a lot more sense don't they it's not just about the profit margins

07:53today although those are impressive it's about controlling rails rolling the rails yeah they handle trillions in settlement volume annually think about that across

08:02countless different blockchains different countries they are the pipes through which so much digital value flows and they sit right at this interesting

08:09intersection don't they fintech innovation defy global monetary policy but there's still not quite banks in the eyes of the regulators

08:18precisely that unique position is key to their value so valuations are driven by profits sure but also by their strategic

08:26importance those powerful network effects uh network effects meaning the more people and platforms use usdt or usdc

08:35the more useful and therefore more valuable it becomes exactly it creates a powerful feedback loop once a stable coin becomes the

08:43standard on major exchanges or in key defy protocols it's very hard to displace everyone builds around

08:49it which reinforces its dominance utility breeds more utility and that stickiness is incredibly valuable

08:56which leads us nicely into why they've become so indispensable not just for traders clicking buttons but

09:01maybe for the wider economy too absolutely their role is foundational now they deliver speed efficiency

09:06and global reach that frankly the old financial system often struggles with like sending money across borders

09:11that's a prime example international wire transfers through banks often slow expensive lots of intermediaries

09:17you send usdc or usdt across a border it can arrive in seconds for a tiny fraction of the cost almost

09:23frictionless yeah anyone who's waited days for a wire transfer and paid 50 for the privilege gets that

09:29immediately right and beyond payments they're crucial for defy complex lending borrowing derivatives stable coins

09:36are often the core collateral or settlement asset they provide the stability needed for those more

09:41complex operations and for active traders you call them the lifeblood of liquidity earlier they really

09:46are most major crypto trading isn't bitcoin versus euro or ether versus yen it's bitcoin versus usdt ether

09:54versus usdc they are the main trading pairs the common denominator exactly plus hedging if the market gets volatile

10:02traders move into stable coins to protect capital without having to cash out to fiat entirely which

10:07might trigger taxes or delays and then there's yield farming providing liquidity to defy pools stable coins

10:14are essential there too they're the stable base currency for the entire digital market okay so the

10:18utility within the crypto world is clear but you also mentioned real world adoption connecting this to

10:23global events where are we seeing that happen most dramatically you really see the power where the

10:28traditional system is under stress think about emerging markets right the sources highlighted places like

10:34argentina turkey nigeria exactly countries grappling with severe inflation sometimes hyperinflation the local

10:41currency the peso the lira the naira is losing value rapidly people's savings are evaporating so what do

10:49they do increasingly they're turning to dollar pegged stable coins mostly usdt or usdc as a way to preserve

10:56their wealth they can hold these digital dollars on their phones outside the unstable local banking

11:02system so it's not about crypto speculation for them it's basic financial self-preservation precisely

11:08it's a flight to safety a way to access the stability of the u.s dollar when their own currency offers none

11:14it's like a grassroots digital dollarization driven by necessity not by government policy that's a powerful

11:21use case and what about the other side the traditional finance world trad fi adopting this deck that's the

11:26other big trend the convergence it's not just crypto to gins using this stuff anymore look at circle

11:31and usdc they've deliberately positioned themselves as the regulated compliant option and they forged deep

11:38partnerships blackrock managing some of their reserves integrations with visa for payments coinbase using

11:45it for settlements so visa is actually using usdc rails they're actively building solutions using usdc for

11:51things like cross-border b2b payments and faster corporate payouts when established giants like visa

11:58start building on these stable coin rails you know it's becoming part of the mainstream financial

12:02plumbing the lines are definitely blurring okay so we have this massive ecosystem let's map out the

12:07main players you mentioned tether and circle are the giants but they have different strategies right

12:12very different yes despite offering similar products on the surface so start with tether usdt the biggest

12:17one around 115 billion dollar market cap now yeah the undisputed leader by size tether strength has

12:23always been its global reach particularly dominant in asia and latin america often in markets where access

12:29to traditional u.s dollars or banking is more difficult and historically maybe a bit more opaque

12:35or risk tolerant with their reserves compared to circle that's been the perception and at times the

12:41reality based on their attestations they face scrutiny over their reserve composition but maintain they are

12:46fully backed they seem to thrive by being ubiquitous and maybe operating closer to the regulatory edge in

12:52some jurisdictions okay then circle usdc their approach completely different positioning circle has gone

13:00all in on being the regulated transparent institutional grade choice especially targeting the us and european

13:07markets since the blackrock partnership exactly partnering with the world's largest asset manager to handle

13:13reserves sends a powerful signal about trust and compliance their whole focus is on institutional

13:18adoption integrating with traditional finance and playing a role in things like asset tokenization

13:23bringing real world assets onto the blockchain and the new kid on the block relatively speaking

13:29paypal by usd what's their angle paypal is the big web2 player entering the game their strategy seems clear

13:37leverage their massive existing user base hundreds of millions of people

13:40people and integrate py usd seamlessly into their existing payment apps so make stable coins easy for

13:48regular consumers to use maybe without even realizing they're using crypto pretty much it's about

13:53bringing stable coin utility to everyday payments and e-commerce bridging the gap between the existing

13:58internet and the crypto rails a mainstream integration play interesting but these are all backed by fiat

14:04reserves held off chain right yeah what about decentralized alternatives you mentioned maker do's dai earlier

14:10right dai is the classic example of a different model it's not backed by dollars in a bank account at least not

14:16originally how does it work then it's generated when users lock up other crypto assets primarily ether

14:22initially as collateral in smart contracts on the blockchain it's over collateralized meaning you have

14:27to lock up more value in collateral than the dai you borrow against it so backed by crypto assets held on

14:33chain more decentralized less reliant on banks exactly that's the core idea resilience against censorship or

14:40single points of failure like a bank collapsing but what's fascinating now is maker do's

14:45strategic shift they call it the real world asset or rwa pivot okay rwa that sounds jargony unpack that for us what

14:53are real world assets in this context good question rwas are basically traditional assets things like real estate

15:00bonds loans or crucially u.s treasury bills that get represented as digital tokens on a blockchain so tokenizing

15:07traditional assets why is maker dao doing that with dai isn't the point to be crypto native

15:13well crypto collateral can be extremely volatile right ether's price swings wildly that creates risk for

15:18maintaining dai's peg by incorporating rwa specifically by holding tokenized u.s treasuries as part of dai's backing

15:25ah so they're adding safe stable yield generating traditional assets into the mix precisely they get two big benefits

15:33much greater stability for the dai peg and they get to earn that juicy safe yield from treasuries just

15:38like circle and tether are doing so even the big decentralized stable coin is now tapping into trad fi yield

15:44yes it really shows how powerful that yield incentive is across the entire space it's blurring the line

15:51significantly between pure defi and traditional finance strategies everyone wants that stable yield that's a

15:56really key insight and we should probably give a quick nod to some smaller players too right like fdusd gusd usdp

16:04they seem more niche yeah those tend to be more compliance focused or tied to specific exchanges or

16:11regulatory frameworks gusd is gemini's dollar usdp is paxos dollar fdusd gained traction partly due to

16:18binance promoting it it shows there's room for specialized players focusing on specific compliance needs or

16:24partnerships okay so we've mapped the players and the models but no deep dive is complete without

16:29talking risks and criticisms this isn't all smooth sailing is it definitely not despite the utility

16:35and profits there are significant concerns number one being transparency it's the ghost that always

16:40haunts fiat backed stable coins are they really fully backed one-to-one all the time especially tether

16:46has faced years of questions and the quarterly attestations they publish aren't enough for critics

16:51often not critics want more full real-time independent audits not just attestations showing

16:57a snapshot in time they want absolute proof that the billions in reserves are actually there liquid

17:03and accessible especially during a crisis or a bank run scenario that transparency gap is a major

17:09hurdle for trust and related to that i suppose is concentration risk huge risk think about it tether and

17:15circle together control something like 90 maybe more of the entire stable coin market wow 90 between

17:22two issuers yeah that's an immense amount of financial power concentrated in just two private

17:27companies operating largely outside the traditional banking safety nets like deposit insurance if either

17:33tether or circle were to fail or even just face a serious crisis of confidence it could destabilize the

17:38entire crypto market absolutely the ripple effects would be enormous because so much trading and defy

17:43activity depends on them it's a systemic risk for the crypto ecosystem which brings us back to that

17:48regulatory question if they're so systemically important why aren't they regulated like banks

17:54especially someone like circle who emphasizes compliance what's the gap they're using it really

18:00comes down to classification and lobbying frankly they argue they aren't taking deposits in the same way

18:05a bank does or that their technology company is providing a payment tool they operate in this legal gray area

18:11between banking law money transmission laws and emerging digital asset regulations a very profitable gray

18:18area exactly and that ambiguity is precisely why regulators worldwide are scrambling to create clear

18:25rules they see the systemic importance they see the shadow banking functions and they want to bring

18:29it under proper oversight and we are seeing specific efforts you mentioned micah in europe right micah the

18:36markets and crypto assets regulation is a comprehensive framework rolling out across the eu it sets clear

18:42rules for crypto asset issuers including stable coins covering things like reserve requirements

18:47governance and consumer protection it's probably the most advanced framework globally right now and in the

18:53us yeah still being debated still very much in flux there have been various proposals for a stable coin act

19:00some proposals would restrict issuance primarily to federally insured banks others focus on setting

19:05strict standards for reserves and audits regardless of the issuer type there's a lot of debate about

19:11the right approach balancing innovation with financial stability so regulatory clarity is coming but the

19:17final shape is uncertain and that uncertainty itself probably influences the market definitely it affects

19:24institutional adoption investment in the space and potentially those profit margins we talked about if

19:29stricter reserve rules or capital requirements come into play and beyond the market risks there are bigger picture

19:35implications too right geopolitical monetary policy yes absolutely think about the global use of dollar

19:42pegged stable coins especially in those emerging markets we discuss the digital dollarization phenomenon

19:48right when citizens in argentina or nigeria start using usdt instead of their local currency for savings and

19:54transactions that directly challenges the authority and effectiveness of their own central bank it erodes their

20:01control over the domestic money supply and monetary policy so stable coins become a kind of parallel global

20:08monetary system bypassing traditional controls in a way yes they operate outside the established swift network

20:14for international payments and offer an alternative to local currencies it's a fundamental challenge to the

20:20traditional nation-state control over money that has huge long-term implications okay understanding those risks and

20:26the regulatory push helps frame the future where is this all heading what's the impact on web3 and the wider

20:32economy looking forward well stable coins are already deeply embedded they're the fuel for so much activity

20:37like defy yeah defy's total value locked tvl basically the amount of assets staked in defy protocols

20:43is heavily reliant on stable coin liquidity nft markets often use stable coins for pricing and settlement

20:50dao treasuries the funds held by decentralized autonomous organizations often hold significant

20:56stable coin reserves for operational stability they're just fundamental in the tradify convergence you

21:01mentioned that's likely to accelerate seems almost certain the involvement of visa paypal jp morgan using

21:07similar tech internally it shows the traditional financial world recognizes the efficiency gains they're not

21:14fighting web3 they're adopting its best parts and stable coins are arguably the most successful and

21:19practical application of blockchain tech and finance so far but looking even further ahead the really

21:24exciting development the next big narrative shift is likely around programmable stable coins programmable

21:30stable coins okay what does that mean money that has code attached essentially yes moving beyond just

21:35being a stable unit of account or medium of exchange imagine stable coins intrinsically linked to smart contracts

21:41so the money itself could have rules embedded in it exactly rules that execute automatically think about

21:47compliance a programmable stable coin could be coded so it can only be sent to pre-approved ky seed wallets

21:54or imagine automated tax withholding at the point of transaction or instant automate settlement for

22:00complex financial contracts based on external data feeds wow that sounds potentially very powerful but also

22:07maybe a bit dystopian it has huge implications for efficiency and transparency automating things that currently

22:13require layers of intermediaries but yes also raises questions about control and privacy it's a major area

22:19of development and will likely see it become much more prominent around 2025 and beyond it moves stable coins

22:24from just being better payment rails to being truly programmable money a fascinating glimpse into the future okay

22:31let's bring this all together for you listening who stuck with us through this deep dive we want to boil it down

22:36to a few key takeaways based on everything we've discussed what's takeaway number one i'd say watch stable

22:42coin supply growth as a metric okay why is that important because the total market cap of stable coins is

22:47often seen as dry powder for the crypto market when you see that supply expanding rapidly billions flowing into

22:53stable coins it often means new capital is entering the ecosystem potentially waiting to be deployed into more

22:58volatile assets like bitcoin or ether it can be a leading indicator for market sentiment and potential rallies

23:05got it so rising stable coin supply can signal incoming liquidity let's take away number two number two

23:12relates directly to their business model monitor global interest rates because their profits depend on

23:18it heavily as we discussed a huge chunk of revenue for issuers like tether and circle comes from the yield on

23:25their treasury reserves if central banks particularly the fed start cutting interest rates significantly those yields

23:31will fall and stable coin company profits will likely shrink that could impact their valuation their

23:37spending and just the general buzz around them right so their fate is tied to macroeconomics yeah

23:42and a final takeaway maybe for someone thinking about investment angles third takeaway consider indirect exposure

23:48since the big stable coin issuers themselves are mostly private companies or operate in complex regulatory

23:54environments directly investing in them is hard for most people so how do you get exposure look at the

23:59ecosystem around them think about the platforms that benefit from stable coin growth major crypto exchanges where

24:06stable corns dominate trading volume leading d5 protocols that rely on stable coin liquidity

24:12even companies involved in asset tokenization or rwa platforms as stable coins are often the settlement layer there

24:18look at the picks and shovels supporting the stable coin gold rush follow the infrastructure follow the flow makes sense

24:25that's where you often find the related investment opportunities excellent well that brings us to

24:30the end of this deep dive we've really peeled back the layers on how these stable coin giants work

24:35essentially acting as incredibly efficient asset managers riding the wave of interest rates and

24:40becoming the essential liquidity engine for the global crypto economy we touched on the huge utility

24:46especially in places failed by traditional finance the massive profits but also the very real risks around

24:52transparency concentration and the looming regulatory changes but as always we want to leave you with a

24:57final thought something to chew on it loops back to that core challenge they pose right so here it is

25:03if these stable coin issuers are making billions literally billions by earning interest on assets that

25:09ultimately belong to their users and if they're processing trillions in global payments and settlements but

25:15without the full regulatory oversight and costs of being a traditional bank are they just the next evolution of

25:21banking are they becoming the new global banks or are they something fundamentally different something

25:25that needs a completely new kind of regulatory thinking maybe even a decentralized one that is the big

25:31question isn't it and the answer really could reshape global finance in the coming years thank you so

25:37much for joining us on the deep dive today we hope you found this breakdown useful maybe you had that

25:42aha moment like realizing the sheer scale of profit from reserve interest if you did get value from

25:48this the best way to help us keep doing these deep dives is simply to engage you know the drill

25:54subscribing to the channel leaving a comment with your thoughts maybe sharing this with someone else

25:58who'd find it interesting it genuinely helps us out with visibility lets the algorithms know people are

26:04watching and allows us to keep putting the time into creating this kind of in-depth content for you

26:09we really appreciate you spending your time with us thanks again and we'll catch you on the next deep dive

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