The recent decision by the United States Federal Reserve to cut interest rates for the first time since March 2020 is expected to affect the revenue streams of the top five centralized stablecoins.
According to a report published by CCData on September 27, these stablecoins collectively hold approximately $125 billion in U.S. Treasuries, and each 50 basis point (bps) rate cut could result in a loss of approximately $625 million in interest income.
The report shows that U.S. Treasuries account for 80.2% of the reserves of major stablecoins.
Therefore, any reduction in interest rates will directly affect their income.
Markets expect 75 basis points of rate cuts by the end of 2024
Markets are pricing in a cumulative 75 basis points of rate cuts by the end of 2024, including a 50 basis point cut in November and another 25 basis point cut in December, according to CME Group’s FedWatch tool.
If these predictions come true, stablecoins could face an additional $937.5 million in lost revenue, which would bring the total potential losses from the Fed’s easing policy to $1.5625 billion.
Of the affected stablecoins, Tether’s USDT holds the most U.S. Treasury reserves, at $93.2 billion in Treasuries and repurchase agreements.
Tether reported a net profit of $5.2 billion in the first half of 2024, largely thanks to higher interest rates.
Circle’s USD Coin (USDC) follows closely behind, holding $28.7 billion in Treasuries through its Circle Reserve Fund.
Other stablecoins such as First Digital USD (FDUSD), PayPal USD (PYUSD), and TrueUSD (TUSD) hold $1.83 billion, $634 million, and $502 million in Treasury bonds, respectively.
The expected decline in interest rates could further squeeze the profit margins of these stablecoins.
Despite these potential financial pressures, the stablecoin market has proven resilient.
According to CCData, the total market capitalization of stablecoins increased by 1.50% in September to $172 billion, marking the 12th consecutive month of growth. However, the total market capitalization is still lower than the level before the Terra Luna decoupling event in May 2022.
Centralized exchange volumes also declined, falling 39.4% to $683 billion as of September 23.
USDT continues to dominate the stablecoin market, accounting for 77.2% of all trading volume on centralized exchanges.
FDUSD is the second most traded stablecoin with a market share of 11.6%, followed by USDC with 10.9%.
Japan’s three largest banks test cross-border stablecoin transfers
Japan’s top three banks are reportedly launching a pilot project aimed at speeding up international settlements through the use of stablecoins.
The project, called Project Pax, will involve a stablecoin issued by blockchain platform Progmat, which is backed by SBI Holdings and Japan Exchange Group.
Participating banks include Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corporation (SMBC) and Mizuho Bank.
The trial, which also involves blockchain companies Datachain and TOKI, will explore the use of cross-chain technology for faster and more efficient transactions.
Meanwhile, Ripple’s CEO Brad Garlinghouse revealed that the company is in the process of launching a stablecoin in Japan.
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