“Son, you need to look into this stablecoin thing — everyone here is talking about it!”

My dad’s voice crackled through our international call, carrying that particular mix of excitement and urgency that usually meant he’d discovered something he was convinced would change everything. This time, it was stablecoins.

“They’re saying it’s like having digital dollars that never lose value, but you can make money from them too! No more worrying about the currency fluctuating, no more expensive bank transfers. And get this—some people are earning 8% returns just by holding them!”

I’ll admit, he had my attention. My relatives were excitedly sharing news articles and videos, discussing “USDT this” and “USDC that.” Someone claimed he was using stablecoins to pay international suppliers with fees that were “practically nothing.” Another person apparently earning more from “yield farming” than her part-time job.

You know that feeling when everyone around you seems to know something you don’t? That was me, staring at my phone after dad hung up, wondering if I’d missed the boat on the financial revolution happening right under my nose.

The Siren Song of “Stable” Profits

My first instinct was to dive into the hype. The influencer videos my dad had been watching painted stablecoins as this perfect storm of innovation: all the convenience of digital currency, none of the volatility of Bitcoin, plus mysterious profit opportunities that traditional banks couldn’t match.

The claims were intoxicating. “Bank-killer technology!” “Earn while you sleep!” “The future of money!” One particularly enthusiastic YouTuber promised that stablecoins would “democratize finance” and let ordinary people “capture the value that banks have been stealing for decades.”

But here’s where my software engineering brain kicked in—when something sounds too good to be true, it usually means I don’t understand the system well enough yet. So I started digging.

What Actually Is a Stablecoin? (My First Wrong Turn)

Initially, I thought stablecoins were just “better Bitcoin”—cryptocurrency that somehow solved the volatility problem through clever technology. I imagined some breakthrough algorithm that could magically keep prices steady while still generating returns.

This misconception lasted exactly until I read my first technical explanation. Stablecoins aren’t magically stable—they’re stable because they’re supposed to represent something else entirely.

Think of a stablecoin like a digital receipt. When you buy USDC (one of the major stablecoins), you’re essentially handing over a real dollar to Circle (the company behind USDC), and they give you a digital token that says “this person owns one dollar’s worth of our reserves.” The token moves around on the blockchain, but theoretically, you can always trade it back for that dollar.

It’s less like Bitcoin and more like a very sophisticated digital gift card—except instead of being locked to one store, it works across the entire crypto ecosystem.

But this realization led to my next question: if stablecoins are just digital representatives of regular dollars, how exactly is anyone making money from them?

The Profit Puzzle: If Someone Gains, Someone Loses

This is where things got interesting, and where I had to call my dad back with some follow-up questions.

“Dad, you said people are making money from stablecoins. But if they’re supposed to be worth exactly one dollar, where do the profits come from?”

His pause told me he hadn’t thought about this either.

Here’s what I discovered: the profit mechanisms are actually quite straightforward, but they reveal something important about who’s really winning in this system.

The Issuer’s Goldmine: Companies like Tether and Circle collect billions of real dollars from people buying stablecoins. But they don’t just stuff this money under a digital mattress. They invest it in U.S. Treasury securities, money market funds, and other safe, interest-bearing assets. When interest rates are high (like they were in 2024), this becomes incredibly profitable. Tether reported earning over $5 billion in profit just from parking their reserves in these investments.

Think about it: if you have $140 billion in reserves earning even 4% annually, that’s $5.6 billion in yearly income. The stablecoin holders get their stable digital dollars, but the issuer keeps all the investment returns.

The User’s Slice: Regular people can make money too, but it involves taking on risk. You can lend your stablecoins on platforms like Aave or Compound for 4-8% returns, or participate in “yield farming” on decentralized exchanges. But here’s the catch—these aren’t guaranteed bank-style returns. They come with smart contract risks, platform risks, and the possibility of losing everything if the protocols get hacked or fail.

The Zero-Sum Reality: This is when I had my first “wait a minute” moment. My dad was excited about gains, but I started asking: if stablecoin users and issuers are making money, where is that money coming from?

The answer made the whole system much clearer, and much less revolutionary than the hype suggested.

The Great Banking Sideshow

When people move their money from bank deposits into stablecoins, something interesting happens to the traditional financial system. Banks lose deposits, which means they have less money to lend out, which reduces their fee income. Meanwhile, stablecoin issuers are essentially running a new type of financial institution—one that captures the spread between what they pay users (nothing, for basic stablecoins) and what they earn on reserves.

It’s not that banks are disappearing, but they’re definitely being squeezed. The profitable parts of banking—holding deposits and earning investment returns—are being recreated in the crypto world, but with different players capturing the profits.

My dad’s enthusiasm started to make more sense. In countries with strict capital controls that make international transfers expensive and slow, stablecoins offer a genuine improvement. Exporters dealing with international trade could get paid in stablecoins like USDT and avoid both currency volatility and hefty bank fees. For actual use cases like this, stablecoins solve real problems.

But the idea that this was creating money out of thin air? That was clearly wrong.

The Philosophical Rabbit Hole

By this point, I was deep enough into my research that I started thinking about bigger questions. What is money, really? And what makes stablecoins different from what we’ve always had?

This led me down a fascinating philosophical path that I probably should have expected, given that we’re talking about the intersection of technology, economics, and human psychology.

Traditional money—the paper bills in your wallet—has no intrinsic value. A $20 bill is just a piece of paper that’s valuable because the government says it is, and because everyone agrees to accept it. Bitcoin took a different approach: it’s valuable because the technology mathematically guarantees its scarcity, and people have collectively decided it’s worth something.

Stablecoins seemed like they might be returning us to something more fundamental—digital tokens backed by actual assets with real value. Instead of trusting governments or algorithms, you’re trusting that there’s a real dollar somewhere backing your digital dollar.

But this philosophical appeal started to crumble when I learned about algorithmic stablecoins.

The Algorithmic Stablecoin Disaster

Remember how I initially thought stablecoins used clever algorithms to stay stable? Well, it turns out some actually tried to do exactly that—and the results were catastrophic.

Algorithmic stablecoins like TerraUSD attempted to maintain their dollar peg not through asset backing, but through complex supply-and-demand mechanisms. When the price went above a dollar, the algorithm would create more tokens. When it fell below, it would buy tokens back or burn them.

In theory, this created a fully decentralized stable currency backed by nothing but math and market incentives. In practice, when market confidence collapsed in 2022, the whole system entered a death spiral. TerraUSD lost its peg, crashed to nearly zero, and wiped out about $60 billion in value.

This crash taught me an important lesson: stability isn’t just about clever mechanisms or good intentions. It requires either real asset backing or the credible commitment of a powerful institution (like a central bank) to maintain the peg no matter what.

The algorithmic experiment’s failure drove many projects back to full collateralization. Even formerly algorithmic projects like Frax switched to being 100% backed by real assets after witnessing Terra’s collapse.

The Types That Actually Work

After the Terra disaster, the stablecoin landscape became much clearer. The ones that survive and thrive fall into a few categories:

Fiat-Collateralized (like USDC): For every digital token, there’s supposed to be a real dollar held in reserve. Circle, which issues USDC, publishes regular attestations showing their reserves. This transparency costs more to maintain but provides confidence.

Crypto-Collateralized (like DAI): These are backed by other cryptocurrencies, but because crypto is volatile, they’re typically over-collateralized. You might need to lock up $150 worth of Ethereum to mint $100 worth of DAI. It’s more complex but keeps the system decentralized.

Commodity-Backed (like gold-backed tokens): These represent claims on physical assets like gold or silver. Each token theoretically corresponds to a specific amount of the underlying commodity.

The common thread among successful stablecoins is that they’re backed by something real and redeemable. The ones that tried to maintain stability through pure algorithm and market mechanics either failed spectacularly or evolved toward collateralization.

The Reality Check: Who Actually Benefits?

After weeks of research, I had to call my dad back with some sobering conclusions.

“Dad, I’ve been looking into this stablecoin thing you mentioned. It’s interesting, but I don’t think it’s the goldmine for regular people that the influencers make it seem.”

The truth is that stablecoins are genuinely useful technology, but the revolutionary profits largely flow to megacorporations and financial institutions, not ordinary users.

For Big Companies: Stablecoins are genuinely transformative. They can move money across borders instantly with minimal fees, manage foreign exchange risk, and access new yield opportunities. Companies like Circle went from $15 million in revenue in 2020 to $1.7 billion in 2024 by capturing the spread on reserves.

For Regular People: The benefits are much more modest. You can earn yields above traditional savings accounts, but these come with risks that banks don’t have. You can send money internationally more cheaply, but you’re trading regulatory protections for convenience. The life-changing profits that get hyped on social media either require taking significant risks or are simply not available to small players.

For Startups: There are some operational benefits—easier international payments, simpler global payroll, reduced transaction fees. But the idea that stablecoins create new profit opportunities for small businesses is largely overblown.

What I Learned About Hype Cycles

This whole experience taught me something important about how financial innovation gets marketed versus how it actually works.

The influencer narrative around stablecoins—that they’re democratizing finance and creating profit opportunities for everyone—isn’t entirely wrong, but it’s misleadingly incomplete. It focuses on the most exciting possibilities while glossing over the risks and the fact that the biggest benefits accrue to the largest players.

Stablecoins do solve real problems, especially around international payments and providing dollar access in countries with volatile currencies. My dad’s excitement wasn’t misplaced—for individuals dealing with restrictive financial environments and expensive international transfers, stablecoins offer genuine value.

But the revolutionary profit opportunities? Those exist primarily for the companies issuing stablecoins and the institutions that can deploy capital at scale with sophisticated risk management.

The Bigger Picture

Looking back on this research journey, I realize that stablecoins represent something more subtle than either the hype or the skepticism suggests.

They’re not revolutionary in the sense of creating a completely new economic system or generating massive wealth for ordinary users. But they are evolutionary—they’re improving the efficiency of money movement and creating new infrastructure for digital finance.

The real innovation isn’t in making money from stablecoins, but in using them as better plumbing for the financial system. They make certain transactions faster, cheaper, and more accessible. That’s valuable, even if it’s not as sexy as “disrupting all of finance.”

For people in my dad’s situation—dealing with international business, currency controls, and expensive traditional banking—stablecoins genuinely improve daily life. For people hoping to strike it rich with minimal risk, they’re likely to be disappointed.

What I Tell People Now

When friends ask me about stablecoins after hearing the hype, I try to give them a realistic picture: they’re useful financial tools, not wealth generation machines.

If you’re sending money internationally, dealing with volatile local currencies, or need to hold dollars outside the traditional banking system, stablecoins can be genuinely helpful. Just understand that you’re trading some protections and conveniences of traditional banking for the benefits of blockchain technology.

If you’re looking to earn yield, understand that the attractive returns come with real risks that traditional savings accounts don’t have. And if you’re hoping that stablecoins will democratize wealth creation, remember that most financial innovations ultimately benefit the institutions that deploy them at scale.

The next time someone gets excited about a financial innovation that seems too good to be true, I’ll remember this lesson: the technology might be real, the benefits might be real, but they’re probably not distributed the way the marketing suggests.

Sometimes the most valuable thing you can learn from a hype cycle is how to think more clearly about the next one.

(The story is fictional)