They use the dollars to invest in USA treasuries of 3 months. They invest the money and pay 80% to the users, so 20% of the dollars yield are to Xapo. They have a annual fee of 150 dollars.

They brought bitcoins a long time ago for low value, almost 30k bitcoins. They said for now that they use these bitcoins to pay 1% yield on bitcoins deposits. Here is an interview:

https://m.youtube.com/watch?t=1455&v=PMbN8cd_jBY&feature=youtu.be