Recently, I’ve been thinking about an interesting question: in the stablecoin market, who is the real winner?

At first glance, stablecoin business seems simple—but behind the scenes, there’s actually a three-way covert battle. An investor at Blockchain Capital recently posted an analysis of this phenomenon, and I think it’s worth discussing in depth.

First, let’s talk about how outrageously profitable the issuer’s business is. Users give them fiat, and then they mint digital dollars on-chain, before investing those fiat into U.S. Treasuries to earn interest. In other words, it’s profit with essentially zero risk—just sitting there and making money. Banks still have to lend and manage risk, and insurance companies still have to pay claims, but stablecoin issuers are basically pure cash-flow machines. Tether has a team of only 300 people, and its 2025 profit is expected to exceed $10 billion—this business model is truly on a historic level.

But with a profit pie this big, how could nobody be envious?

The application layer has started to move. Big platforms like Phantom and Coinbase control the users, and their bargaining power with issuers is actually quite strong. The logic is straightforward: I’ll help you distribute assets and retain users, so you have to share part of the profits with me—otherwise, I’ll push other stablecoins. This situation is already playing out in real life. Coinbase and Circle’s partnership is a typical case: it’s said that Coinbase takes all the interest generated by USDC on the platform, as well as 50% of the interest income generated outside the platform.

Even more aggressive application layers simply issue their own stablecoins, completely bypassing issuers. Aave’s GHO is based on this idea. However, most application layers lack the issuance license and underlying infrastructure, so they turn to white-label solutions. Paxos is doing this now—providing technical support for PayPal’s PYUSD—so PayPal can directly profit from floating interest without having to negotiate with major issuers.

That said, application layers also can’t completely cut issuers out. Established stablecoins like USDC and USDT have strong network effects: they’re reserve assets for DeFi, with liquidity far exceeding that of their own stablecoins. Also, white-label stablecoins often carry the issuer’s branding, which makes them easier to be excluded from the ecosystem. For example, early on, Binance may not have been very willing to fully promote USDC because it’s Coinbase’s product—now, USDT’s trading volume on Binance is 5 times that of USDC.

What’s most interesting is that users’ expectations are changing the entire landscape. In the United States, the risk-free rate is around 4%, so users naturally ask: why isn’t my digital dollar generating any yield? Once a wallet starts offering returns, users will flock there. The application layer falls into a dilemma: to stay competitive, they may have to share part of the yield with users, which means negotiating more aggressively with issuers. If they can’t get a share, how can they pay interest to users?

But this kind of pressure is much less intense in overseas markets. In regions with severe inflation, users want stability more than yield. Someone who is fighting against asset depreciation may not care too much about 4% interest. As a result, Tether’s advantage in these regions could become even more pronounced.

In the end, in this three-party game, the application layer is stuck in the middle. On one hand, it has to meet users’ expectations for yield; on the other hand, it has to push back against issuers who are fiercely guarding their profits. The business logic of stablecoins is evolving rapidly, and profit allocation is continuously being adjusted. My intuition is that the final winner might actually be users—they will gradually gain more yield as competition plays out across all sides. The more intense this battle becomes, the more it benefits ordinary users.