USDT (Tether Foundation) and USDC (Circle) are the most used stablecoins in the cryptocurrency market. Both process billions of dollars in daily transactions on exchanges, DeFi platforms, and more. But how do these two centralized companies that issue these two stablecoins generate profits? The first thing you should understand is that if 50 billion USDT exists, being backed 1:1 by real dollars, there exists 50 billion real (fiat) USD somewhere.

INTEREST ON RESERVES
The main revenue stream comes from the interest they generate on their reserves (fiat currency). These two companies store these reserves in bank accounts and invest them in money market funds. This allows the company to earn interest on the reserves.
For example, if Circle manages $30 billion in reserves, it can generate significant interest income simply by holding and investing these funds. A modest 2% return would equate to hundreds of millions per year. The companies say they only work with regulated and trusted counterparties to manage the reserves. Correct management of reserves is essential for the two stablecoins to maintain their peg with the dollar. As long as new USDT/USDC is issued, reserve interest rates should continue to rise.

COMMISSIONS
In addition to interest on reserves, the two companies also collect fees on some transactions (P2P transfers, exchange trades, USDT burn i.e. when someone redeems USDT directly from Tether Limited they are charged a fee to burn the tokens from circulation. This ensures that users can always redeem 1 USDT for $1). Integrations into third-party apps and services that integrate these stablecoins may also be subject to fees. These transaction fees provide revenue streams to the two centralized companies. For example, at the beginning of 2019, Tether announced that it would also issue USDT on the Tron network, also becoming a validator of this blockchain, earning commissions and rewards by confirming transactions on Tron.

LOANS
Centralized stablecoin issuers also earn interest by lending out its massive dollar reserves. However, this can also be risky if not handled prudently.
In 2019, an investigation by the New York Attorney General revealed that Tether had lent reserves to Bitfinex, its affiliated cryptocurrency exchange. This allowed Bitfinex to remain solvent after losing access to over $800 million in customer funds. A subsequent AG investigation led to a settlement requiring Tether to cease lending to affiliated entities and provide greater transparency about its reserves.

BOND
These companies can also invest their stablecoin reserves by purchasing government bonds or other financial assets. "Bonds" are financial instruments issued by entities, such as governments, companies or institutions, to raise funds. They essentially work like loans. Anyone who purchases a bond becomes a creditor of the entity that issues it and receives regular interest on the invested capital, generally paid at fixed intervals, until the bond matures, when the initial capital is returned to the investor.

CREDIT/DEBIT CARDS
These companies also generate revenue from using debit or credit cards where these stablecoins are backed, earning interchange fees on every transaction. The cards can allow users to spend USDT/USDC at any store (they are converted into fiat currency before making the payment).

DEFI
Stablecoins (so not fiat currency) can be used within DeFi protocols to provide liquidity or participate in liquidity pools, earning interest or rewards.

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