Stablecoins Should Pay You, Why Tether Won't, and the Risk

Changpeng Zhao, co-founder of Binance, delivered a direct message on the ARK Invest podcast: stablecoins should generate interest for users. The problem, he told Cathie Wood, is that Tether (USDT) has no incentive to do so. That structural reality is now colliding with a wave of yield-bearing competitors and a regulatory framework that could push the most innovative products outside U.S. jurisdiction.

The simple read is that Zhao is calling for stablecoin issuers to share revenue. The better read is that the stablecoin market is entering a phase where the absence of yield becomes a competitive vulnerability, and the regulatory response will determine whether that vulnerability hits Tether’s dominance or accelerates a shift to offshore alternatives.

The Yield Gap: Why Tether Doesn't Pay Interest

Zhao was blunt about Tether’s position. “I don’t think Tether is going to do that anytime soon. They’ve achieved dominant position without doing that because they were the early mover,” he said. Tether built its $100 billion-plus market cap by being the first liquid, dollar-pegged token that exchanges and traders adopted. It never needed to offer yield because network effects and liquidity were the product.

That first-mover advantage is now under pressure. Newer stablecoins are explicitly offering yields, creating an opening for competition. Circle’s USDC is growing, and USD1 is expanding quickly. Meanwhile, stablecoins outside the U.S. are gaining traction rapidly. Zhao noted that “any business that takes care of their users more than others will win. Either low fees or you give them rewards. Any business that gives users better returns has a big advantage.”

The mechanism is straightforward. Stablecoin issuers hold reserves, typically in U.S. Treasuries, that generate interest income. Tether keeps that income. A yield-bearing stablecoin passes a portion of that income to holders. In a market where the product is otherwise identical–a dollar token–the one that pays you is strictly better. The only reason Tether hasn’t lost share yet is inertia and deep liquidity. But inertia erodes when the yield differential becomes material.

The Regulatory Wedge: U.S. vs. International Stablecoins

The risk event here is not just competition; it’s regulatory arbitrage. If U.S. regulators prohibit or restrict yield-bearing stablecoins, the products will simply be issued elsewhere. Zhao warned that “if the U.S. doesn’t allow yield-bearing stablecoins, international stablecoins may win in the short term.” That’s not a prediction of Tether’s demise; it’s a statement about where the marginal growth will come from.

This matters because U.S. dollar stablecoins are a powerful tool for dollar dominance. They create an indirect way to sell U.S. Treasuries to the global crypto population. Zhao pointed out that many countries want to issue their own currency-backed stablecoins, and selling bonds through stablecoins offers an indirect but effective way to raise money and increase investment. If the U.S. cedes the yield-bearing segment to offshore issuers, it may also cede some of that dollar distribution channel.

For traders, the immediate implication is that the stablecoin landscape could fragment. Liquidity in USDT remains deep, but if a yield-bearing alternative gains enough adoption, the cost of holding non-yielding stablecoins rises. That could shift collateral preferences in DeFi, alter the composition of exchange order books, and change the risk-free rate assumptions in crypto lending markets. We’ve already seen this dynamic play out with tokenized Treasury products; a yield-bearing stablecoin is the next logical step, as explored in our stablecoin adoption analysis.