The crypto industry is watching closely as potential Federal Reserve interest rate cuts pose a material threat to Circle and its flagship stablecoin, USDC. Recent analysis from Omar, a Director at Dragonfly, shared on X, makes clear this is not a hypothetical concern: rate-sensitive issuers that rely on interest from reserves could face steep revenue and margin pressure.
Stablecoin issuers like Circle earn a large share of their income by holding reserves in short-term U.S. Treasury bills and similar instruments that generate interest. Omar’s breakdown shows that a 100-basis-point cut in U.S. rates would meaningfully reduce Circle’s interest income—and ripple through the company’s financials. A one-percentage-point rate drop could shave roughly $618 million off Circle’s run-rate gross revenue, a decline of about 23%.
That revenue hit would also compress profitability: gross profit could fall by an estimated $303 million (about a 30% decrease), while operating margins might compress by around 3.3 percentage points. Those numbers illustrate how exposed stablecoin business models can be when a large portion of revenue depends on risk-free interest yields.
Omar also calculates the supply-side adjustment that would be required to offset the lost interest income. To reach a break-even point after the rate cut, USDC supply would need to expand by roughly $28 billion—about a 44% increase over today’s roughly $64 billion USDC circulation. Achieving that level of growth would be a major undertaking and raises questions about market dynamics, demand for stablecoins, and issuer strategy.
For crypto investors and DeFi participants, the takeaway is clear: macro policy moves matter for on-chain infrastructure. As the Fed’s path becomes clearer, expect renewed scrutiny on reserve management, stablecoin economics, and how issuers plan to adapt revenue models that have leaned heavily on interest rate environments.
