Fed Rate Cuts Threaten Tether and Circle Profits by 50%

The looming U.S. Federal Reserve rate cuts are raising concerns about the financial stability of major stablecoin issuers Tether and Circle. With traders pricing in a near-certain 50-basis-point rate cut in September, the declining interest rates threaten to erode the profit margins of these firms, which heavily rely on yield generation from U.S. Treasuries and other interest-bearing assets [6].

Circle, the issuer of USDC, is particularly vulnerable. The firm derived over 96% of its second-quarter revenue from the interest earned on its U.S. Treasury holdings in Q2 2025. If current forecasts hold, rate cuts could slash its annual gross revenue by up to $618 million and reduce gross profit by $303 million [1]. A 300-basis-point rate reduction, as some speculate might occur, would further exacerbate the pressure on its balance sheet [4].

Tether, which operates the largest stablecoin, USDt, is similarly exposed. The broader stablecoin market has been buoyed by high yields, but with the Federal Reserve signaling a shift toward easing, the returns on these assets are expected to fall sharply. This not only affects the income generated by Tether and Circle but also poses a risk to the stability of their reserves, as lower interest rates may reduce the attractiveness of holding stablecoin balances [2].

Analysts suggest that the long-term dominance of USDC and USDt is not necessarily at risk, but the near-term financial performance of their issuers could suffer. Bernstein, for example, remains bullish on Circle's long-term prospects, maintaining a price target of $230 per share following its Q2 results and its expansion into the Arc blockchain network [7]. However, this optimism is tempered by the immediate pressures from the Fed’s monetary policy shift.

As the stablecoin space becomes increasingly competitive—with Ripple’s recent regulatory approval adding another major player to the field—both Tether and Circle must now navigate not only market dynamics but also a rapidly changing macroeconomic environment [9]. The coming months will be critical in determining how these firms adapt to lower interest rates while maintaining the trust and profitability that have driven their rapid growth.

Sources:

[1] Rate Cuts Threaten Profits of Stablecoin Giants Tether and Circle https://coinedition.com/rate-cuts-threaten-profits-of-stablecoin-giants-tether-and-circle/

[2] How Fed Rate Cuts Threaten USDC's Stability https://www.bitget.com/news/detail/12560604911625

[4] Stablecoin Blockchain Battle: Should Ethereum and Tron, or ... https://unchainedcrypto.com/stablecoin-blockchains-are-coming-heres-why-these-two-giants-should-be-nervous/

[6] Markets Price in Certain Fed Rate Cut in September https://www.fastbull.com/newsdetail/markets-price-in-certain-fed-rate-cut-in-4339616_0

[7] Bernstein backs Circle to deliver most dominant stablecoin ... https://www.coinglass.com/ru/news/533117

[9] Stablecoin chains have become a battleground. Who can ... https://www.coinlive.com/news/stablecoin-chains-have-become-a-battleground-who-can-seize-the