Customers are benefitting from the global stablecoin arms race — but that won’t last forever

Stablecoins are entering their most competitive phase yet. For years, the sector’s biggest players (primarily Tether and Circle) dominated largely on liquidity and network effects. But now that the GENIUS Act is allowing stablecoins to go mainstream, the battleground is shifting.

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Stablecoin issuers are all frantically looking for ways to offer the highest possible rewards to their customers in order to gain market share, even if it means drastically cutting into their own margins. It’s easy to understand why. The issuers that manage to grab a big slice of the stablecoin market today are pretty much guaranteed long-term dominance in payments.

While it’s still hard to tell which players will emerge victorious from this race, one thing is for sure: this competition will massively benefit stablecoin users all around the world — at least in the short-term. Over long time horizons, yields are likely to go back down once the stablecoin winners are properly established.

Yields galore

Technically, under the GENIUS Act, stablecoin issuers aren’t allowed to directly offer interest to their users. But firms have found an easy workaround by partnering up with various exchanges, which offer yields on their behalf.

What does the market currently look like? Coinbase offers 4.11% yield on USDC. Kraken has pushed that number to around 5%. Meanwhile, USDe on MEXC is offering yields closer to 6%. And in some cases, depending on how long you lock up your stablecoins and which exchanges or staking instruments you use, users can boost their yields up to a striking 8–14%.

These figures are remarkable for one simple reason: the U.S. Treasury market (the backbone of the world’s “risk-free” yield) does not currently offer anything close to 8%. (Nor can you access any meaningful yields through banks.) For stablecoin issuers to provide such returns, they must go beyond merely parking collateral in short-term treasuries and create synthetic yield mechanisms and structured financial products. Put differently, they’re getting creative, and creating riskier products in order to offer higher rates.

Grabbing market share

We can understand the situation as a land grab. Tether and Circle have huge networks, deep liquidity pools, and the strongest brand recognition in the ecosystem. If you launch a new stablecoin today, you need to offer something that feels meaningfully better. And in a market where the tokens are designed to be dollar-equivalents, yield is the easiest differentiator.

If your competitor is offering 5% yield, you have to offer 6%. If they move to 6%, you must find a way to offer 7%. Each time, you’re cutting into your own margins, with the belief that the short-term pain will be worth it in the long run.

This dynamic mirrors the early era of fintech challenger banks: free international transfers, zero-fee trading, and cashback rewards. These incentives weren’t sustainable in the long-term, but they were effective in grabbing market share. Once customers integrated the product into their financial lives and got comfortable, the network became sticky; from then on, fintechs were able to adopt more sustainable practices.

Another comparison worth making is the ETF sector. Over time, virtually all ETFs converged toward fees so low that several issuers now operate index funds at near-zero revenue margins. The differentiators became brand recognition and integration with consumer trading platforms.

Stablecoins will follow the same pattern, which is why issuers are willing to bleed today for potential stickiness tomorrow.

Global benefits of USD-backed stablecoins

One of the most important and overlooked effects of this competition is that it benefits not just Americans, but users around the world. In emerging economies, access to stablecoins is increasingly becoming access to global financial returns, unfettered by local banking barriers.

A saver in Argentina or Nigeria may have been earning deeply negative real returns holding a local currency ravaged by inflation. Now, by holding stablecoins, instead of losing real returns to inflation, they can earn yields comparable to major financial institutions in the United States, sometimes even higher. This is quietly revolutionary.

High yields are not forever

Nevertheless, we should be realistic about the long-term trajectory. It’d be a mistake to see the incoming wave of aggressive APYs as the new baseline; this is merely the promotional phase of stablecoins.

As the market matures and consolidates around a few primary players, the advantage enjoyed by “high-yield stablecoins” will diminish. Once adoption stabilizes and users are locked into networks for reasons of habit and liquidity depth, issuers will have far less incentive to continue offering elevated yields.

Over time, stablecoin yields will converge much closer to the baseline yield of Treasury bills or overnight repo rates. The future stablecoin landscape will likely resemble the banking sector. We’ll have a few dominant issuers, standardized yields, slim fees, and adoption driven by convenience.

We don’t know which stablecoin will ultimately win the global race. But we do know who is already winning today: the customers. In this early competitive period, stablecoin issuers are effectively paying people to adopt their currency. And in a world where savings erosion is the norm and financial access is unevenly distributed, that alone marks a historic shift.

For now, the stablecoin competition is less of a fight between issuers and more of a windfall for everyone else.