Are stablecoin issuers making stable profits? Italy to impose a 40% windfall tax on banks, is relying solely on interest sustainable?

This week, the release of the stablecoin PYUSD by the payment giant PayPal has sparked discussions in the market. Some believe that PayPal's foray into stablecoin issuance represents a clearer regulatory environment, while others think that PayPal is seeking better sources of profit. Is stablecoin really that profitable? Italy is reportedly considering imposing a 40% windfall tax on banks. Is relying solely on interest income really stable?

Is Stablecoin Issuers a Sure Bet?

Circle, Unprofitable Last Year, Abandons IPO Plans

Stablecoin issuers, with large cash reserves and no need to pay interest to customers, may seem like a sure bet. An analysis of Circle's financial statements from the end of last year revealed a gross profit margin ranging from 50% to 77%, which is quite impressive. However, after deducting expenses such as personnel and management costs, the company was operating at a loss. Circle, which had planned to go public through a SPAC, ultimately announced the temporary abandonment of its IPO plans, citing unfavorable market conditions and the lack of profitability as key factors.

Get a deeper look at Circle's operations: Is issuing stablecoins a good business? A peek into Circle's business model through its financial statements

Coinbase Profit Sharing, USDC Interest Accounts for 22% of Revenue

While Circle had disclosed financial figures from June of last year when the benchmark interest rate was at 1.75%, significantly lower than the current 5.5%, the company no longer releases financial reports. However, insights can be gleaned from Coinbase, a co-issuer of USDC. Coinbase reported second-quarter interest income of $201.4 million, with $151 million coming from USDC, accounting for 22% of its total revenue. This is a substantial increase from last June's interest income of $32.5 million, indicating that the aggressive interest rate hikes by the Federal Reserve have significantly boosted revenue.

Note: Coinbase and Circle co-founded CENTRE to create the stablecoin USDC and share profits from USDC

Tether Continues to Report High Profits

Leading stablecoin issuer Tether has been consistently reporting high profits, with quarterly earnings of $700 million, $1.48 billion, and $1 billion since the fourth quarter of last year. While there have been media criticisms regarding the lack of clarity on the sources of Tether's profits and the varying metrics used in their reports, it is apparent that this offshore stablecoin issuer is amassing significant wealth through interest income.

Tether's profit "black box"? Deconstructing Forbes' report: Tether's declining profits, confusing metrics

Italy to Impose 40% Windfall Tax on Banks

While stablecoin issuance profits are a hot topic, Italy has announced a 40% windfall tax on banks. According to CNBC, Italian Deputy Prime Minister Matteo Salvini declared on Monday that banks would be taxed 40% on the extra profits gained from rising interest rates, amounting to billions of euros. The tax revenue will be used for tax cuts and financial support to mortgage holders, essentially redistributing wealth.

Is Relying Solely on Interest Sustainable?

While interest income from reserves currently dominates stablecoin issuers' revenue streams, interest rates are subject to macroeconomic conditions beyond the companies' control. Similar to banks, which rely on loan interest differentials, they also generate revenue through fees and other services. If stablecoin issuers are solely viewed from the perspective of high interest rates, what will sustain them once the era of high interest rates ends?