Stablecoin Interest: Who Earns the Yield on Reserves

When you hold a stablecoin like USDC or USDT, you might assume it’s just digital cash-stable, simple, and safe. But behind that 1:1 peg to the dollar is a hidden engine: reserve yield. Every dollar locked in a stablecoin’s reserve earns interest. The big question isn’t whether that money makes money-it’s who gets to keep it.

How Stablecoin Reserves Actually Work

Every time someone buys $100 worth of USDC, Circle (the issuer) takes that $100 and puts it into a reserve. That reserve doesn’t just sit in a bank account. It’s invested. Mostly in U.S. Treasury bills-short-term government debt that pays interest. Right now, those bills are yielding over 4%. That means Circle is earning roughly $4 for every $100 in reserves, every year. With over $30 billion in USDC in circulation, that’s $1.2 billion in annual interest income. USDT, issued by Tether, manages even more-over $110 billion. Even at 3% yield, that’s $3.3 billion a year. That’s not pocket change. It’s bigger than the annual revenue of many Fortune 500 companies.

And here’s the catch: you, the user, don’t see a penny of that. The entire yield goes to the issuer. That’s the traditional model. It’s how Circle and Tether fund their operations, pay employees, and make profits. There’s no transparency. No breakdown. Just silent earnings on your money.

The Rise of Yield-Giving Stablecoins

But not all stablecoins work this way. A new breed is changing the game. Take Origin Dollar (OUSD) is a yield-generating stablecoin that auto-compounds returns directly to holders without staking or lockups. OUSD doesn’t just hold cash. It puts your money to work in DeFi-lending it out on platforms like Morpho and Sky, or supplying liquidity to Curve’s OUSD-3CRV pool. Every time someone borrows or trades, OUSD earns fees. And instead of keeping that money, it automatically sends the yield back to you.

OUSD is backed by USDC, USDT, and USDS-so it’s still as safe as those big names. But unlike them, it doesn’t keep the profit. It shares it. Users earn 5-8% annually just by holding OUSD. No extra steps. No locking up your coins. Just holding.

This model isn’t just clever-it’s disruptive. Why would anyone stick with USDC if they can get 7% yield on OUSD with the same backing? The answer: habit, inertia, and lack of awareness. But as more people wake up to this, the pressure on traditional issuers is mounting.

How Yield Is Generated in DeFi Stablecoins

Yield-generating stablecoins like OUSD don’t rely on one trick. They stack multiple revenue streams:

• Lending protocols: Your stablecoin is lent to borrowers who post collateral. They pay interest. That interest flows back to you.
• Liquidity pools: You provide OUSD along with USDT or DAI to a trading pool on Curve. Every trade in that pool pays a small fee. Those fees are split among liquidity providers-like you.
• Auto-compounding: Instead of claiming yield manually, the protocol reinvests it automatically. Your balance grows without you lifting a finger.

This is called yield farming. And it’s the reason why OUSD can offer higher returns than even high-yield savings accounts. It’s not magic-it’s smart, automated finance. But it’s also riskier. If a DeFi protocol gets hacked or a lending partner defaults, you could lose value. That’s why OUSD only uses top-tier, battle-tested platforms. Still, it’s not risk-free.

Who Really Owns the Yield? The Issuer vs. The Holder

There are two clear camps:

Comparison of Reserve Yield Distribution Models

Model	Who Gets the Yield	Example	Yield Rate	Risk Level
Traditional Issuer	Issuer keeps 100%	USDC, USDT	0% to user	Low
Yield-Generating	Holder gets 70-100%	OUSD	5-8% to user	Medium
Exchange Rewards	Exchange shares yield with users	Coinbase Earn, Kraken	3-5% to user	High (regulatory risk)

Exchange-based rewards-like Coinbase offering 4% on USDC deposits-are another twist. Here, Coinbase takes the yield Circle earns, then gives part of it back to you. But this setup is legally shaky. The SEC and lawmakers are already warning that paying interest on stablecoins may violate securities laws. The GENIUS Act and RFIA rules are being rewritten to shut this down. That’s why Coinbase might stop these programs soon.

Meanwhile, OUSD operates on-chain. No middleman. No bank. No regulator breathing down its neck. It’s decentralized. That’s its strength-and its vulnerability.

The Bigger Picture: Treasury Markets and Banking Risk

This isn’t just about wallets and yields. It’s about the entire U.S. financial system.

Stablecoin issuers are now the biggest buyers of short-term U.S. Treasuries. They’re buying so much that they’re pushing down yields. Research from the Bank for International Settlements shows that a $13 billion weekly inflow into stablecoins can drop T-bill yields by nearly 9 basis points. That’s small-but in a market that moves in fractions of a percent, it’s enough to distort pricing.

And here’s the real danger: if people start pulling money out of banks to put it into high-yield stablecoins, banks lose their cheapest source of funding. Community banks rely on small depositors to lend to local businesses, farms, and families. If those deposits vanish, lending dries up. One study estimates that unchecked stablecoin yield programs could drain over $1.5 trillion from the banking system. That’s not a shift-it’s a collapse in credit supply.

That’s why regulators are watching. They don’t want to stop innovation. But they don’t want a financial earthquake either.

The Future: Regulation, Competition, and Choice

Right now, the market is split. Traditional issuers hold onto yield like a monopoly. Yield-generating protocols fight back by giving it away. And exchanges sit in the middle, trying to offer rewards without getting sued.

But the tide is turning. More users are asking: Why should someone else profit from my money? That question is forcing change. Circle and Tether can’t ignore this forever. They might start offering yield-sharing programs. Or they might get forced to.

Regulation will decide the winner. If the government bans interest payments on stablecoins, the traditional model wins. If it allows DeFi-style yield, then OUSD and its peers take over. Either way, the days of silent, one-sided profits are ending.

For now, if you’re holding USDC or USDT, you’re not earning anything. You’re just holding cash. But if you’re holding OUSD, you’re part of a new system-one where your money works for you, not just for a corporation.