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How interest rates affect reserve income
A reserve-backed stablecoin issuer holds assets intended to support its tokens and earns income from those assets. If rates rise, cash and short-term investments that mature or reset can be reinvested at higher yields. If rates fall, new investments and assets rolling over generally earn less. Existing instruments keep their terms until they mature or reset, so the effect can lag a change in market rates.
The total income change depends on more than the yield. It also depends on how much the issuer holds, the mix and maturity of its assets, changes in token circulation, and the currency and fees involved. Circle’s 2025 Form 10-K says the amount of USDC in circulation is “inherently difficult to predict,” illustrating why a rate move alone cannot forecast reserve income. Circle’s 2025 Form 10-K
More reserve income does not necessarily mean more income for holders
Gross income earned on reserves is not the same as issuer profit, and neither is automatically paid to token holders. In its filing, Circle distinguishes reserve income from net reserve income after reserve-management fees and expenses, and describes payments to Coinbase tied to platform balances and ecosystem circulation. These arrangements affect what the issuer retains; they do not establish that ordinary USDC holders receive reserve yield.
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Circle reported that reserve income was 96.0% of its total revenue from continuing operations in 2025, compared with 99.1% in 2024 and 98.6% in 2023. Those are Circle-specific historical figures, not industry-wide ratios or forecasts. Circle’s 2025 Form 10-K
Rates can also change the market value of reserve assets
Income and market value are separate effects. When market yields rise, existing fixed-rate securities can lose market value; when yields fall, they can gain value. A portfolio weighted toward cash, overnight repos and short-maturity government securities generally has less exposure to this interest-rate sensitivity than one holding longer-dated fixed-rate bonds. Short maturities reduce, but do not eliminate, investment, liquidity, counterparty, operational or confidence risks.
Circle’s 2025 filing says its USDC reserve management standard permits U.S. Treasuries with no more than three months remaining to maturity, cash deposits, overnight tri-party reverse repos backed by Treasuries, and government money-market funds. This describes Circle’s policy, not a universal rule for stablecoins. Circle’s 2025 Form 10-K
Rate changes do not determine whether a stablecoin keeps its peg
A change in rates does not by itself change a token’s stated redemption value, nor does it guarantee that the token will trade at that value in the market. Peg stability and timely redemption also depend on reserve quality and liquidity, access to banking and redemption channels, confidence in the issuer, and the volume and timing of redemption requests.
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Circle’s transparency page represents that “USDC is always redeemable 1:1 for US dollars, and EURC is always redeemable 1:1 for euros. Always.” That is Circle’s statement about its products; users should also consider the redemption terms and whether they can access the relevant channels. Circle Transparency & Stability
Interest rates can affect banks connected to stablecoins
Stablecoin reserve flows can influence where deposits sit in the banking system. The Federal Reserve notes that stablecoin-related shifts can change the composition and distribution of bank deposits even if aggregate deposits remain similar, and that issuer deposits may be more volatile than retail deposits. Banks facing deposit competition may respond by adjusting rates; the Federal Reserve calls interest-rate adjustment the most immediate response in that context. This is a possible bank response, not a rule governing how stablecoin issuers set reserve yields. Federal Reserve, “Banks in the Age of Stablecoins”
What to check when comparing stablecoins
There is no harmonized current sensitivity table showing how every major issuer’s earnings would change after the same hypothetical rate move. Compare the issuer’s actual disclosures and access terms instead of assuming one rate effect applies to every stablecoin.
- Reserve composition and maturities: Check whether backing assets include cash, bank deposits, Treasury bills, repos, money-market funds or less-liquid assets, and note the disclosure date and maturity limits. The IMF’s comparison provides context, but its reserve figures are dated to 2025 rather than current allocations. IMF, Understanding Stablecoins
- Disclosure and assurance: Look at how often holdings are reported, what an attestation or audit covers, and whether the information is issuer-reported or independently assured. Circle says it discloses USDC holdings weekly and receives monthly third-party assurance. Circle Transparency & Stability
- Redemption access: Check who can redeem directly, the applicable terms and timing, and any banking or platform dependencies.
- Income arrangements: Determine whether reserve income is shared with exchanges or other distributors. Such arrangements can change issuer economics without implying that token holders receive the income.
- Jurisdiction and rules: Regulatory requirements can shape eligible reserve assets, disclosure, redemption obligations and supervision. Do not assume one issuer’s framework applies to another.
Read reserve figures with their dates
Reserve allocations change, so an issuer’s past filing should not be read as a live breakdown. Circle’s 2025 annual filing reported that approximately 88% of USDC reserves were held in the Circle Reserve Fund on December 31, 2025; it said the remaining portion, typically 10–20%, was held as cash in accounts for USDC holders. Those are date-bound figures. Circle’s live transparency page displayed reserve categories including bank deposits, overnight reverse Treasury repo and Treasuries with less than three months to maturity, and was dated October 5, 2026 when reviewed. Circle’s 2025 Form 10-K Circle Transparency & Stability
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