How Do Stablecoins Make Money?
Stablecoins are one of the most used type of crypto assets, with three stablecoins in the top 10 of cryptocurrencies by market cap. Crypto traders take profit in stablecoins, and for remittances they are extremely fast and cheap. Regulators as well tend to be positive towards stablecoins, sometimes considering them a part of the future financial system. But who is on the 'other side of the trade'? In other words, what is stable coin issuers' business model? How do stablecoins make money? That depends on the type of stablecoin.
Stablecoins can be divided into three main camps.
- Centralized stablecoins that hold fiat collateral off-chain
- Decentralized stablecoins that hold crypto collateral on-chain
- Algorithmic stablecoins without collateral but a volatility coin to maintain the peg
| Type of stablecoin | Example | Backing | How does it make money? |
| Centralized, fiat collateralized | USDT, USDC, BUSD | Each stablecoin is backed one-on-one by a dollar or euro, off-chain | Lending on the money market, fees |
| Decentralized, crypto collateralized | DAI | Over-collateralized by other crypto assets, on-chain | Interest on borrower's stablecoins, fees |
| Algorithmic, non-collateralized | USDD, (former) UST | Volatility coin | Arbitrage of peg difference |
Centralized Stablecoins Make Money (Mostly) by Lending
Centralized stablecoins are called centralized because they have a company behind them, with a board of directors and all. The company operates somewhat like a money market fund (more on that below). The assets that back the stablecoins the company issues are held on the balance sheet or through third parties like banks.
Related Articles
Amazon Launching NFTs Tied to Real-World Assets
Amazon will allegedly launch an NFT marketplace on April 24th. Interestingly, it will allow customers to buy NFTs tied to real-world assets that they ordered.
What is Base, Coinbase’s Layer 2?
Base, a portal for users where they can safely make their first baby steps.
Launch of Polygon’s zkEVM Weeks Away
Polygon’s zkEVM will be an essential tool to onboard large numbers of users and provide the privacy that is so vital to the future of blockchain adoption.
What is Nostr? | The Bitcoin of Social Media Networks
Nostr lets users spin up a social identity and content that no overlord can censor.
Ordinal NFTs on Bitcoin: Why They Could Be a Big Deal
Are Ordinal NFTs on Bitcoin just evil JPEGs invading the sacred Bitcoin blockspace?
Zcash is Moving to Proof-of-Stake
Zcash is moving to Proof-of-Stake (PoS) in the coming years. Let’s have a look at why this prominent privacy coin has decided to move away from good old Proof-of-Work. Is this part of a larger trend?
Staking vs Yield Farming
Staking vs yield farming: These two things look similar on the surface but are anatomically different beasts.
What are AI Coins?
Crypto developers have already been trying to monetize this emerging domain. What projects should we pay close attention to? In other words, what are AI coins?
How to Invest in Web 3: Three Ways
How to invest in Web 3? It turns out there are three important angles to do this. Buy coins, find a job, or buy stocks.