When the Federal Reserve presses the 'start' button on interest rate cuts in Q1 2024, the global financial markets receive a signal of liquidity easing. However, for Circle, the 'stablecoin giant' in the crypto industry, this wave of rate cuts has unexpectedly turned into a 'survival test.' As the issuer of USDC (the second-largest stablecoin by market cap, peaking at over $400 billion), Circle's core profit logic and user appeal are being torn apart by continuously declining interest rates—on one hand, reserve investment income has 'plummeted,' with USDC's annualized yield halving from 4.2% to 2.1%; on the other hand, crypto users are voting with their feet, with USDC reserves shrinking by over $20 billion in the past three months, with some funds flowing into higher-yielding competitors or traditional investments. This 'rate cut dilemma' not only concerns Circle's profits but also impacts the stability foundation of the entire crypto ecosystem.

1. How interest rate cuts have hit Circle's 'lifeline': How has reserve income gradually shrunk?

To understand Circle's predicament, one must first grasp its 'money bag' logic: USDC can become a 'top-performing stablecoin' primarily because of its '1:1 reserve backing'—for every dollar deposited by a user, Circle invests this money in low-risk assets (mainly U.S. short-term Treasuries, high-rated commercial papers, and cash equivalents). The interest income from these assets is both Circle's core profit source and the basis for providing users with 'USDC wealth management yields.'


However, since 2024, central banks, led by the Federal Reserve, have started a cycle of interest rate cuts (with a cumulative cut of 50 basis points as of Q2), which has directly breached Circle's yield foundation:

  • Short-term Treasury yield 'plummets': The proportion of 1-3 month U.S. Treasuries in USDC reserves, which exceeds 70%, has seen its yield drop from 5.4% in 2023 to 2.3% in Q2 2024. This alone has reduced Circle's annualized reserve income by more than 3 percentage points.

  • Wealth management yields 'passively cut in half': Previously, Circle provided users with 'USDC current wealth management' (annualized 3.8%-4.5%) through partnerships with exchanges like Coinbase and Binance. However, as reserve income declines, the annualized yields of these products have fallen to 1.8%-2.2% within three months, and some platforms have even suspended USDC-exclusive yield activities.

  • Profit pressure transmitted to operations: According to The Block data, Circle achieved a net profit of $1.1 billion in 2023 through reserve interest, while the net profit in Q1 2024 has already declined by 42% year-on-year. If rate cuts continue, annual profits may be halved—this means Circle either needs to cut costs (such as reducing market spending) or risk adjusting reserve structures, both of which carry risks.

2. Users voting with their feet: USDC is losing its 'yield attractiveness.'

For crypto users, 'holding stablecoins' has never been merely about 'hedging,' but rather a dual demand of 'capital preservation + earning interest.' As USDC's yield advantage disappears, the migration of funds begins to accelerate:


  • Three consecutive declines in reserve size: From $380 billion in March 2024 to $358 billion in June, where have over $20 billion of funds flowed? Chainalysis data shows that about 40% has shifted to 'higher-yielding stablecoins' (such as DAI maintaining a 2.5% annualized yield through the Maker protocol, and some emerging stablecoins even launching 'limited-time 3% yields'), while 30% has flowed into traditional short-term Treasury ETFs (such as VGSH with an annualized yield of 2.7%, which is lower risk).

  • The loss of small and medium investors is most evident: a survey from a certain crypto community shows that among users holding $10,000 to $100,000 USDC, 62% indicated they 'would consider switching to other products,' primarily due to 'the yield difference is not enough to cover the switching costs, but in the long run, the interest loss is too much.'

  • Institutional clients are cautious: Circle's institutional clients (such as hedge funds and payment companies) have not withdrawn funds on a large scale, but they have started to 'reduce new allocations'—an industry insider from Wall Street revealed, 'Previously, we added $5 million USDC monthly for cross-border settlements, but now we only maintain $2 million, and the rest has been invested in dollar money funds.'

3. Circle's 'attempt to break through': Walking a tightrope between 'stability' and 'yield.'

Faced with dual pressures, Circle is not sitting idle, but every step taken is filled with 'dilemmas':


  1. Adjusting reserve structure: Risking longer duration?
    To enhance yields, Circle quietly replaced 10% of short-term Treasuries (1-3 months) with 'medium-term Treasuries' (6-12 months) in Q2 2024, which have yields 0.8 percentage points higher than short-term ones. However, risks follow—medium-term Treasuries have worse liquidity, and in the event of large-scale USDC redemptions (such as during the 2022 Silicon Valley Bank incident), Circle may face 'difficulty in monetization,' violating its promise of 'full instant redemption.'

  2. Expanding 'non-yield scenarios': Betting on payments and DeFi?
    Since the yield attractiveness has decreased, Circle has begun to increase 'scenario stickiness': for example, collaborating with Walmart to launch 'USDC offline payment cashback,' and increasing 'USDC collateral lending discounts' in DeFi protocols like Aave and Compound. However, these actions need time to take effect—by Q2, USDC's payment transaction volume only grew by 5% quarter-on-quarter, which is far from the user loss speed brought about by declining yields.

  3. Lobbying regulators: Seeking 'special yield channels'?
    Recently, Circle has frequently communicated with the U.S. SEC and the Federal Reserve, hoping to invest part of its reserves in 'high-rated municipal bonds' (which have yields 1% higher than short-term Treasuries), but regulators are concerned about the 'risk linkage between stablecoins and traditional finance' and have yet to relent.

4. Not just Circle: This is the 'rate cut test' for the entire stablecoin industry.

Circle's dilemma is essentially a microcosm of the entire stablecoin industry. As the trend of declining interest rates takes hold, the model of 'profiting from reserve interest' is becoming ineffective.


  • USDT's 'alternative response': Tether (the issuer of USDT) has chosen 'not to publicly adjust yields,' but according to internal sources, the 'proportion of high-risk assets' in its reserves has risen from 5% to 8% (such as high-yield commercial papers). Although this has maintained yields in the short term, it has planted compliance risks.

  • Opportunities for algorithmic stablecoins: Some algorithmic stablecoins (such as FRAX) have seized the opportunity to launch 'inflation-linked yield models,' attracting approximately $5 billion in inflows. However, the 'unsecured risk' of such products still deters mainstream users.

  • Chain reactions to the DeFi ecosystem: USDC is the 'core collateral' of DeFi (accounting for 35% of Aave's total collateral), and its yield decline has led to a simultaneous drop in DeFi lending rates (Aave's USDC lending annualized rate dropped from 5% to 3.2%), putting pressure on some DeFi protocols facing 'capital outflows and shrinking TVL.'

In conclusion: Should you keep or exchange the USDC in your hand?

For ordinary investors, Circle's 'rate cut dilemma' is not about 'whether USDC will collapse' (after all, reserves are still 100% covered, predominantly with Treasuries), but rather about 'whether the cost-performance ratio of holding remains':


  • If you have a 'short-term hedging need' (for example, waiting for crypto market conditions): USDC is still a safe choice, as it is more transparent than USDT and carries lower risks than algorithmic stablecoins.

  • If you are 'long-term idle capital' (for example, not used for over 6 months): you may consider 'diversified allocation'—keeping some in USDC for liquidity, and transferring some to traditional short-term Treasury ETFs or higher-yielding compliant stablecoins.

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