- US interest rate cuts could slash Circle’s annual gross revenue by up to $618 million.
- The cuts, expected in September, would also slash gross profit by $303 million.
- Circle recently announced the debut of Arc, an EVM-compatible Layer-1 blockchain.
Stablecoin giants Tether and Circle face a revenue challenge as upcoming US interest rate cuts threaten to reduce the substantial income they earn from interest-bearing US Treasurys.
MartyParty, a crypto analyst on X, warned that when interest rates drop, both issuers will “lose a lot of revenue” because they rely heavily on yield from their Treasury holdings.
Circle and Tether will need to issue more stablecoins to maintain their current revenue. This is probably why they decided to launch their own chain to generate revenue, since there are rumors of rate cuts starting in September, said the analyst.
Revenue at Risk
According to internal financial projections shared in MartyParty’s post, a 50 basis point (bps) cut in interest rates would reduce Circle’s gross revenue by $309 million annually, while a 100 bps cut could wipe out $618 million.
Gross profit would fall by $152 million and $303 million, respectively, with gross margins shrinking up to 3.3 percentage points.
At current rates, Circle earns $2.54 billion annually in reserve income, supported by its vast holdings in US Treasurys. Any rate reduction directly impacts this figure, forcing the company to explore new business models.
Related: Circle Shares Slide 5% Post-Market on Share Sale Plan Following 425% IPO Rally
Arc: Circle’s Blockchain Bet
Recently, Circle unveiled Arc, an open Layer-1 blockchain built specifically for stablecoin finance. Fully Ethereum Virtual Machine (EVM) compatible, Arc will use USDC as its native gas token, enabling transaction fees to be paid in the token itself.
The network aims to deliver sub-second settlement, an integrated stablecoin foreign exchange engine, and enterprise-grade compliance features. A public testnet is expected this fall. By focusing exclusively on stablecoin transactions, Circle hopes Arc will drive new fee-based revenue streams beyond interest income.
Tether’s Treasury Dominance
Meanwhile, Tether has quietly become a major player in the US bond market. In its Q2 2025 attestation report, Tether disclosed holdings of $127 billion in US Treasury bills, surpassing South Korea’s $124.2 billion and closing in on Saudi Arabia’s $127.7 billion.
Tether’s Treasury exposure, which includes $105.5 billion held directly and $21.3 billion indirectly, has grown by $7 billion since the first quarter. The stablecoin issuer is now the world’s 18th-largest holder of US Treasurys, overtaking Germany in May.
Related: Hyperliquid Integrates Circle’s USDC and CCTP V2 to Boost DeFi Ecosystem
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