Fiat-backed stablecoins—digital assets pegged to currencies like the U.S. dollar—have surged to about $238 billion as of August 2025, according to Visa Onchain Analytics, over 60 times their 2020 value. This explosive growth has spurred policymakers to craft regulatory frameworks addressing financial stability, consumer protection, and systemic resilience. This article explores how new reserve asset rules could reshape stablecoin issuers’ business models and the future of payments.
Recent legislation in the United States and European Union shows broad alignment on reserve requirements: both mandate 1:1 backing with high-quality liquid assets (HQLA), currency-matched reserves, and prohibit interest payments by issuers to holders. Differences emerge in asset allocation specifics. While reserves typically include government securities—directly or via overnight reverse repos[1]—and bank deposits, prescribed levels vary significantly across jurisdictions.
Regulatory Influences on Stablecoin Business Models
Requiring stablecoin issuers to hold HQLA, including securities and deposits, should have little impact in the short term, as many stablecoin issuers already back their stablecoins with these assets. For example, data on USDC, the U.S. dollar-pegged stablecoin issued by Circle Internet Group, Inc. (“Circle”) and currently the second largest stablecoin by market capitalization, shows reserves comprised almost exclusively of U.S. Treasury bills, reverse repos, and deposits (see Figure 1), since at least July 2022.[2]
Figure 1: Reserve Holdings for USDC Stablecoin
Source: Circle, U.S. dollar figures indicate fair value of asset held in reserve, percentage indicates ratio of asset to total.
The logic for this arrangement is straightforward: by holding deposits and government securities—high-quality, risk-free assets that can be liquidated quickly to meet redemption needs—stablecoin issuers hope to convey to consumers (and the market) that these new digital assets are safe and secure. Additionally, the yield earned from holding these assets provides an important revenue source. Historical U.S. interest rate data on applicable stablecoin reserve assets (see Figure 2) provides helpful context for the current asset allocation of USDC reserves.
Interest rates on reverse repos and U.S. Treasury bills have been significantly higher than those associated with bank deposits for the past several years, which is reflected in the substantial allocation of USDC reserves to reverse repos (43.3 percent) and U.S. Treasury bills (43.2 percent), as compared to bank deposits (13.5 percent), which is highlighted in Figure 1.
Figure 2: Average Interest Rates on Acceptable Stablecoin Reserve Assets in the U.S.
Source: All data comes from Federal Reserve Economic Database. Reverse repo rate comes from overnight rate reported by the New York Fed, U.S. Treasury Bills rate is the 3-month Treasury Bill secondary market rate from the Federal Reserve Board, and the Bank Deposit rate is the average rate on interest checking accounts by all insured depository institutions and credit unions as reported by the FDIC.
Stablecoin issuers may face considerable interest rate and counterparty risk
While this strategy provides a sense of stability for stablecoin holders, it makes issuers heavily reliant on returns from government securities and exposes them to counterparty risk. Circle’s USDC illustrates this vulnerability: from 2022–2024, interest on reserve assets contributed 95 to 99 percent of its total revenue, per its S-1 filing. With such exposure, Circle modeled the impact of rate changes. Assuming end-2024 stablecoin circulation and reserve asset allocations remain constant, a 100 basis point drop from a 4.33 percent average yield could cut reserve income by $441 million in 2025—about one-quarter of 2024 revenue.
With respect to counterparty risk, Circle’s exposure to Silicon Valley Bank (SVB) proved considerable. During SVB’s collapse in March 2023, Circle revealed that $3.3 billion of its $40 billion in USDC reserves was effectively trapped with the struggling bank. Fears that Circle may not have enough collateral to meet redemptions resulted in USDC breaking its 1:1 peg, trading as low as 87 cents on the secondary market.[3] Two months later, according to a Bloomberg article, concerns over the looming U.S. debt crisis led Circle to replace short-term Treasury exposure with reverse repo contracts—a shift that persisted even after Treasuries were re-introduced (see Figure 1).
Revenue on reserve assets likely to be buffeted by expected decline in rates
The passage of the GENIUS Act in the United States should not materially impact stablecoin business operations in the short term, as noted earlier, since the assets they currently invest in are among the acceptable reserve assets, e.g. cash, bank deposits, U.S. Treasuries, and repurchase agreements. Furthermore, U.S. regulations do not prescribe allocation amounts or limits on these assets, allowing stablecoin issuers to optimize the asset allocation mix as they see fit.
However, these regulations will not alleviate interest rate or counterparty risks. With U.S. interest rates expected to decline over the next few years (see Figure 3), stablecoin issuers can likely expect a corresponding reduction in reserve asset income. Of course, this decline may be offset by an increase in stablecoin supply. Given the recent passage of stablecoin legislation, many market participants are quite optimistic about future stablecoin growth. For example, Citi Institute released a report in April 2025 suggesting that by 2030 total stablecoin issuance could climb as high as $3.7 trillion—though the base case is for a $1.6 trillion increase, with a lower bound estimate at $500 billion (see Figure 4).[4][5]
Figure 3: Forecasts of U.S. Interest Rates
Source: Actual interest rates equal avg 90-day Secured Overnight Financing Rate (SOFR), data from New York Fed via FRED. Forecasted SOFR rates from Atlanta Fed’s Market Probability Tracker, as of September 2, 2025.
Figure 4: Forecasts of USD Stablecoin Supply Growth
Source: Actual supply data from Visa. Forecasted stablecoin supply comes from Citi Institute’s 2030, factoring in expected decline of the proportion of USD-pegged stablecoins to 90 percent by end-2030.
To estimate how a potential decline in U.S. interest rates, coupled with an expected rise in stablecoin supply, may impact revenue projections for GENIUS Act-compliant stablecoin issuers of U.S. dollar-denominated stablecoins, the following assumptions are made:
- Stablecoin issuers of U.S. dollar-denominated stablecoins will maintain a reserve asset allocation mix identical to the USDC reserve (e.g. 85 percent in U.S. Treasuries, and 15 percent in deposits).
- U.S. dollar-denominated stablecoin supply increases to $1.4 trillion by 2030, as projected by Citi Institute’s base case.
- U.S. interest rates decline by approximately 200 basis points by 2027, before stabilizing, as projected using monthly forecasts of the Secured Overnight Funding Rate (SOFR) available at EconForecasting.[6]
Based on these assumptions, the positive impact from increasing stablecoin supply will likely outweigh the negative effects from declining interest rates, resulting in a modest increase in annual revenues (see Figure 5). For example, annual revenues between 2025 and 2027 could rise by about $8 billion, supported by approximately $11 billion in contributions from rising stablecoin supply, offsetting the potential $3 billion decline in revenue from the expected drop in interest rates.
Figure 5: Estimated Annual Revenue from U.S. Dollar-Pegged Stablecoin Reserve Assets
Source: Author’s calculations. Change in stablecoin supply circulation based on Citi Institute’s base case for stablecoin issuance. Change in asset yield based on annual average SOFR, calculated using monthly forecasts from Econforecasting, as of September 2, 2025.
Should interest rates decline more than expected, or supply forecasts prove overly optimistic, stablecoin issuers will need to consider alternative revenue sources. Indeed, Circle is already looking at ways “to monetize the activity on our network with products that earn fee-based revenues based on transactions and usage in the future,” and its recently announced Circle Payments Network is likely a step in that direction.
Of course, revenues are only one side of the equation. Complying with new stablecoin regulations requiring certification of anti-money laundering (AML) and know your customer (KYC) programs may incur additional (and recurring) costs that stablecoin issuers have not had to fully consider yet. If these costs become considerable, and new sources of revenue do not outweigh these costs, stablecoin issuers may find their current business models prove untenable.
Prescriptive regulatory environment in Europe may hinder stablecoin growth
Europe illustrates the limits of the stablecoin model: negative interest rates from 2015–2022 made euro-pegged stablecoins economically unviable. Today, they lead non-USD stablecoins with $410 million in market cap, but still represent only 0.16 percent of total issuance, according to data from DeFiLlama. Going forward, stablecoin issuers face limits from the EU’s Markets in Crypto Assets (MiCA) regulation that could curb revenue from interest on reserves. MiCA mandates at least 30 percent of reserves in bank deposits—rising to 60 percent for “significant” issuers[7]—unlike the GENIUS Act, which sets no specific allocation requirements.
To gauge MiCA’s impact, compare a non-significant issuer with €4.9 billion in issuance to one deemed “significant” at €5 billion. At current rates—0.51 percent for overnight deposits and 1.99 percent for 3-month bills[8] the smaller issuer could earn about €75.8 million annually. Crossing the threshold would cut revenue roughly 27 percent to €55.1 million due to stricter reserve allocations.[9]
Conclusion
Stablecoin regulation is advancing quickly as policymakers work to balance innovation with financial stability. Key principles—such as 1:1 reserve backing with high-quality liquid assets, currency-matched reserves, and bans on interest payments—seek to reduce systemic risk and protect consumers. A well-designed framework can foster innovation while maintaining trust, whereas overly rigid or fragmented rules risk stifling progress and encouraging regulatory arbitrage. For issuers, stricter reserve requirements and greater transparency may reshape revenue models. The challenge is to craft risk-sensitive, technology-neutral, and globally interoperable standards that keep stablecoins secure, efficient, and inclusive without hindering growth. As such, continued dialogue between regulators, industry participants, and policymakers will be essential to strike the right balance.
About the Visa Economic Empowerment Institute
Economic empowerment is about removing the structural barriers and systemic biases that have made it difficult for all individuals to take part in the global payments ecosystem. The Visa Economic Empowerment Institute (VEEI) provides a platform for the international exchange of policy ideas that can advance economic empowerment.
VEEI brings together experts in the fields of payments, economic policy, technology, security, international trade, and economic development to advance VEEI’s mission. These experts share a common purpose: the development of strategies that can eliminate the obstacles to economic success for people and businesses everywhere.
[1] Criteria for “significant” stablecoins for MiCA, include 1) more than 10 million stablecoin holders, 2) a market cap greater than €5 billion, and 3) an average number and aggregate value of daily transactions exceeding 2.5 million transactions and €500 million, respectively.
[2] Deposit rate according to ECB data and 3-month bill rate from St. Louis Fed. Both rates as of July 2025.
[3] If MiCA did not prescribe specific allocation levels and the stablecoin issuer was allowed to invest its €5 billion reserve similar to USDC under the GENIUS Act, the annual revenue generated would be approximately €88.4 million.
[4] Forecasts calculated as of September 2, 2025. Use of SOFR mirrors calculation method provided by Circle, noting that reserve asset income is earned “historically at rates at a discount to the prevailing SOFR during the applicable periods”. Analysis of Circle’s S-1 data shows the reserve return rate is about 16 basis points below the quarterly average SOFR. This discount is used in the author’s calculations.
[5] MIT research suggests the USDC peg held up for institutional clients with primary market access, despite breaking the peg for retail users on the secondary market.
[6] The Citi Institute report expects U.S. dollar-denominated stablecoins to account for 90 percent of total issuance by 2030, from 99.8 percent currently, suggesting estimates for total U.S. dollar-denominated stablecoin supply by 2030 would range from $450 billion (Low) to $3.3 trillion (High), with a base case of $1.4 trillion.
[7] Following the drafting of this paper, the Citi Institute updated its forecast for stablecoin issuance by 2030, increasing its base case to $1.9 trillion, while shifting its High and Low estimates to $4 trillion and $900 billion, respectively. Nonetheless, the analysis in this report remains based on the April 2025 estimates.
[8] In a reverse repo, the stablecoin issuer lends cash in exchange for collateral (usually government bonds). At term end—typically overnight—the borrower repays the cash plus interest and regains the collateral.
[9] Prior to July 2022, Circle reported only the “total fair value of U.S. dollar denominated assets held on behalf of USDC holders” and did not divulge specific assets held in reserve.
Download your sample issue here!
No part of Central Bank Payments News may be reproduced, copied, republished, or distributed in any form or by any means, in whole or in part, without the express and prior written permission of the publisher, Currency Research Malta, Ltd.