The wonderful and crazy world of stablecoins – Creed Capital Crypto News

Have you heard of Tether?

This little-known company issuing stablecoin USDT—now headquartered in El Salvador—is estimated to have earned over $5 billion in profit in 2024, with fewer than 200 employees.

Meanwhile, its U.S.-based counterpart Circle, the issuer of the stablecoin USDC and fully regulated under U.S. law, generated $1.68 billion in revenue last year and is preparing for a highly anticipated $10 billion IPO. These staggering figures raise an obvious question: how are companies making billions of dollars simply by issuing stablecoins? To understand this, we must first ask:

What is a stablecoin?

A stablecoin is a type of cryptocurrency designed to “hopefully” maintain a fixed value relative to an underlying asset, most commonly the U.S. dollar.

For instance, one USDT (Tether) or USDC (issued by Circle) is always intended to be worth exactly one U.S. dollar. This stability makes stablecoins a crucial component in the cryptocurrency ecosystem, especially given the volatile nature of coins like Bitcoin or Ethereum.

As discussed in previous columns, cryptocurrencies allow for the transmission of value over the internet without relying on a centralized intermediary. However, this same benefit is hampered by wild price fluctuations.

For example, imagine attempting to wire $1 million to a business partner in Japan late on a Friday. Because banks in both countries must be open to process the transaction, such a transfer can be delayed over the weekend. Now, consider using Bitcoin: you purchase 10 Bitcoins at $100,000 each and send them. But if Bitcoin’s value drops to $80,000 by the time your partner receives it, they’ve effectively lost 20% of the intended payment. In a business setting, especially if your recipient needs to make onward payments, this kind of risk is unacceptable. A dollar-pegged stablecoin solves this problem by offering the speed and efficiency of crypto without the volatility.

While international transfers are a major use case, the real engine behind the explosive growth of stablecoins has been crypto trading and speculation. Just as traditional markets have speculators trading gold, oil, or stocks, the crypto market has a parallel class of traders looking to capitalize on price movements. Many of these trades used to be executed on exchanges like Binance and Bitfinex—platforms that, for a long time, didn’t allow direct trading between cryptocurrencies and actual fiat dollars. This is where stablecoins filled a vital gap.

Imagine a trader believes Bitcoin, currently priced at $100,000, will rise to $130,000 in a month and then fall to $110,000 in another month. They would want to sell at the peak and buy back during the retracement. However, converting Bitcoin into other cryptocurrencies like Ethereum or Solana doesn’t eliminate risk, as those assets tend to move in tandem with Bitcoin. What the trader needs is a stable store of value to park his profits before redeploying his capital—a digital dollar—that allows them to lock in profits and wait for the right moment to re-enter the market. Enter USDT and USDC, which gave traders that exact capability.

Stablecoins may appear unassuming, but they are now integral to the infrastructure of modern crypto finance. Whether enabling efficient international transactions or providing liquidity and risk management tools for traders, these coins have become indispensable—and extraordinarily profitable for the companies that issue them.

A centralized stablecoin like USDT is issued from Tether and USDC is issued from the company Circle when a customer comes and gives them dollars and Tether gives a USDT coin to them in their wallet which they can send just like a bitcoin. Tether’s promise is they will keep your deposits in a safe vault and will give that back to you when you come back with a USDT and ask for redemption of their dollar.

Tether then invests this in US Treasuries and collects the interest. There are 158 billion dollars’ worth of Tethers floating around and the company tether puts the Dollar used for purchasing it in buying Treasuries and collect interest on that. 4% on 158 billion is not bad revenue at all for 150 employees and 5 billion dollars in profit. That is 40 million profit generated per employee, the highest in the world per employee. The next highest one is Nvidia at 2 million per employee.

This is one kind of stable coin and a centrally controlled one. The negative of such a stablecoin is we have to trust the issuer Tether company that they will put the dollars into safe treasuries and will not invest in some scheme and lose customer deposits. But this centralized cryptocurrency, Does it not beat the purpose of cryptocurrencies in the first place?

Tether, for years were under investigation by various US authorities for comingling and losing customer funds. There is no way to check if they really have all these dollars in treasuries but trusting their word. The pros are it is efficient and convenient because it is a centralized mechanism in crypto.

The second type of stablecoin is the crypto collateralized stablecoin like the DAI from Maker Foundation. This is a stablecoin backed by crypto like Ethereum. Since the underlying is crypto and is volatile they are over-collateralized. To issue 100$ worth of a stablecoin a user will have to send 150$ worth of Ethereum to a smart contract. We discussed smart contract in our earlier article.

The contract will issue the stablecoin DAI. If the value of the collateral or Ethereum falls below a certain level and we do not put up more collateral, the contract will automatically sell our collateral in the vault or liquidate it and make sure the holder is whole. The users pay a stability fee or interest to the protocol when they repay loans. The peg stability module will swap DAI for USDC with minimal slippage. If DAI trades below 1$ arbitrageurs will buy it cheap and sell it for USDC. This reduces supply and increases prices back to 1. The disadvantage of collateralized debt position type stablecoin is that it is capital inefficient. The pro is that it is all on chain without a middleman. It is a stablecoin that follows the ethos of decentralization.

The third type of stablecoin or the holy grail of stablecoins is the algorithmic stablecoin. These are not backed by collateral but instead rely on smart contracts and algorithms to manage supply and demand and they are issued from thin air. When the price rises above $1, the protocol mints more coins; when it falls below $1, it burns or removes supply. While innovative, this model is highly risky—TerraUSD (UST) is a notable example that collapsed spectacularly in 2022 and practically took the whole market down along with it.

The other algorithmic stablecoin failures over time includes Basis(2018), Empty Dollar Set(2021), Iron Finance(2021), Neutrino USD(2023). TerraUSD(UST) coin was pegged to the dollar with a mint and burn relationship with LUNA its sister coin. When 1$ of UST is created or minted 1$ worth of LUNA was burned or taken out of supply. LUNA was meant to absorb the price fluctuations.

If UST traded above $1 (say $1.05), users could burn $1 worth of LUNA to mint 1 UST, then sell that UST for $1.05—making a profit. This increased UST supply and brought the price down toward $1.

If UST traded below $1 (say $0.95), users could burn 1 UST to mint $1 worth of LUNA. They could then sell the LUNA at a profit, reducing UST supply and pushing its price back up toward $1.

This was the core algorithmic arbitrage mechanism meant to maintain the peg.

In early May 2022, UST began to slightly depeg from $1, dropping to ~$0.98 due to market volatility and large withdrawals from Anchor Protocol (Terra’s main DeFi app, which offered ~20% yields on UST deposits). As users lost confidence, they began burning UST for LUNA to exit positions and sell into other stablecoins or fiat. This flooded the market with new LUNA tokens. As more UST was burned, more LUNA was minted, dramatically increasing LUNA’s supply. This caused LUNA’s price to crash, making each $1 worth of LUNA represent more and more tokens. At one point, billions of LUNA were being minted per day. The hyperinflation of LUNA happened. As LUNA’s value collapsed, the system could no longer absorb UST redemptions effectively. Eventually, no one wanted to redeem UST for LUNA because LUNA was becoming worthless. UST fell to just a few cents. On top of this Terra company sold their bitcoin treasury worth billions to pop up their LUNA and that made bitcoin crash. UST’s stability was based entirely on market confidence and the value of LUNA. Once that confidence was shaken, the arbitrage mechanism became a liability, not a stabilizer. With no real collateral backing, the system entered a death spiral: UST redemptions caused LUNA inflation, which made redemptions even less effective, accelerating the collapse

Each type involves trade-offs between decentralization, stability, and trust. Centralized coins offer reliability but require trust in a company. CDP-based models offer more decentralization but can be complex and volatile and not capital efficient. Algorithmic coins promise full decentralization but remain largely experimental.

The future is Tether?

Tether is the seventh largest buyer of US treasuries in 2024, ahead of nations like Canada, Taiwan, and Norway. And its pace of growth is only increasing: total USDT issuance last year was $45 billion (57 percent year-over-year growth), and USDT users grew 13 percent in Q1 2025. So crypto folks and tether could be an answer for who would buy US debt in future if China stops buying.

People in unstable economies like Argentina or Zimbabwe relied on Tether or Bitcoin to save themselves and their wealth from local hyperinflation. Cantor Fitzgerald one of the primary US treasury dealers took a stake in the company Tether and now their CEO is the US commerce secretary. This allows Tether to sell US treasuries faster if customers come for their dollar deposits. Tether will become mainstream in the US also. The question is when will India follow or Reserve Bank allow entrepreneurs in India to create the equivalents of Tether with Indian Rupee? When do we have a free market people’s stablecoin rupee than a government forced stablecoin?

Nithin Eapen is a technologist and entrepreneur with a deep passion for finance, cryptocurrencies, prediction markets and technology. You can write to him at neapen@gmail.com

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