While stablecoin debates often focus on transparency, reserve quality, and systemic contagion, the greatest risk could be far more mundane: math.
As USD-pegged stablecoins increasingly flood the marketplace competing for users, liquidity splinters across platforms and may prevent most from ever achieving operationally effective adoption. As a result, countless stablecoins, whether privately issued or state-backed, are coming face to face with a brutally simple business model challenge: if circulation doesn’t reach scale, issuers cannot generate enough revenue from their reserve assets to cover operational costs.
As of today, only about half a dozen stablecoins have surpassed $1 billion in circulation, while the remaining 50-plus linger at subscale levels. For financial executives evaluating payment integrations or treasury strategies, this dynamic should set off alarms.
Read more: Keeping Stablecoins Stable is Complicated: Why CFOs Need to Pay Attention
Why Stablecoin Circulation Matters More Than Reserves
Every stablecoin has to maintain its peg. The traditional model is straightforward: issuers hold reserves, whether that be cash, short-term Treasurys, or other safe assets, whose yield becomes their main revenue stream. Operational expenses include everything from compliance and legal costs to cybersecurity, exchange listings and partnerships with banks and payment processors.
For a leading issuer with tens of billions under management, for example, a 5% yield on Treasurys provides an ample margin. At $80 billion in circulation, for instance, the math works out to $4 billion annually before costs. That makes stablecoin issuance not only viable but wildly profitable. Stablecoin issuer Tether, as a data point, made $13 billion in profit last year.
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But a stablecoin at $500 million circulation produces just $25 million in annual gross yield at the same rate. Out of this, the issuer must cover overhead, marketing, technology, licensing, and ongoing reserve audits. Once those expenses are netted out, the margin may be thin, if it exists at all.
The situation grows more precarious when yields fall, as they inevitably might. The low-rate environment of the 2010s offered little relief for new entrants, and any return to that cycle could wipe out small issuers altogether.
At the same time, the fragmentation of the stablecoin market matters because liquidity is self-reinforcing. A coin that’s widely used in trading pairs, accepted across exchanges and integrated into payment rails attracts more users. The inverse is also true: illiquid stablecoins languish in obscurity, unable to build the velocity required for sustainable revenue.
For CFOs and payment firms, this creates risk at the integration layer. Choosing to accept or settle in a subscale stablecoin exposes the firm to the possibility of abrupt issuer retrenchment, de-pegging events or simply a business model that fails quietly when reserves can no longer fund operations.
See also: Institutional-Grade Custody Remains Missing Link in Crypto’s Mainstream Breakthrough
The Irony of Stability and the Reality of Counterparty Risk
Many firms are weighing whether to settle cross-border payments, manage treasury liquidity or offer customer accounts denominated in stablecoins. Each of these decisions carries exposure not only to peg stability but to issuer solvency at the operating level.
The irony is that the very attribute stablecoins promise around stability depends less on cryptography or regulatory oversight than on something far more mundane: scale economics. Without sufficient user base and circulation, the math simply doesn’t work.
Counterparty risk is operational as much as financial. Even if reserves are fully collateralized, an issuer unable to fund compliance or security is a weak link. At the same time, diversification is not always protection. Holding multiple stablecoins might spread regulatory risk but can also dilute liquidity and expose firms to subscale issuers with fragile business models.
The industry may soon resemble the early days of internet search engines or social networks: a long tail of competitors destined to collapse into a handful of dominant players. The logic is inexorable. Scale delivers revenue, revenue funds operations, and operations sustain trust.
The CFO’s job is to translate these structural realities into treasury policy. That means asking not only “Are reserves safe?” but also “Is this issuer viable at current circulation?”
Payment processors, card networks and FinTech platforms face similar calculus. Integrating a stablecoin is costly: technical development, compliance approvals, fraud monitoring and customer education all demand investment. Committing those resources to an issuer that fails to reach scale can result in sunk costs and reputational exposure.
For finance teams, ultimately the lesson may be to not to be mesmerized by transparency reports or reserve audits alone. The viability of a stablecoin can be as much a question of sustainable business modeling as it is of collateral management. Payment firms, likewise, can weigh the cost of integration against the probability that a given coin will ever achieve the scale to justify its presence in the market.
