The recent decision by the United States Federal Reserve to cut interest rates for the first time since March 2020 is expected to impact the income of the top five centralized stablecoins.
According to a CCData report released on September 27, these stablecoins, which collectively hold nearly $125 billion in U.S. Treasury bills, could lose about $625 million in interest income for every 50-basis-point (bps) rate cut.
The report highlights that Treasury bills make up 80.2% of the reserves held by major stablecoins, meaning any reduction in interest rates will directly affect their revenue.
Market Expects 75bps in Rate Cuts by End of 2024
Data from CME Group’s FedWatch tool suggests that the market is anticipating a total of 75 bps in rate cuts by the end of 2024, including a 50-bps cut in November and an additional 25-bps cut in December.
If these predictions hold true, stablecoins could face an additional revenue loss of $937.5 million, bringing the total potential loss from the Fed’s easing policy to $1.5625 billion.
Among the affected stablecoins, Tether’s USDT has the largest share of Treasury-backed reserves, totaling $93.2 billion in T-bills and repurchase agreements.
Tether reported a net profit of $5.2 billion in the first half of 2024, largely due to higher interest rates. Circle’s USD Coin (USDC) follows with $28.7 billion in Treasury holdings via its Circle Reserve Fund.
Other stablecoins like First Digital USD (FDUSD), PayPal USD (PYUSD), and TrueUSD (TUSD) have smaller Treasury positions of $1.83 billion, $634 million, and $502 million, respectively.
The anticipated decline in interest rates is likely to further pressure their profit margins. Despite these potential financial challenges, the stablecoin market has demonstrated resilience.
In September, the total market capitalization of stablecoins rose by 1.50% to reach $172 billion, marking the 12th consecutive month of growth, according to CCData.
However, the overall market cap remains below pre-May 2022 levels, prior to the Terra Luna depegging event.
Trading volumes on centralized exchanges have also declined, falling by 39.4% to $683 billion as of September 23. USDT continues to lead the stablecoin market, accounting for 77.2% of all trading volume on centralized exchanges, followed by FDUSD at 11.6% and USDC at 10.9%.
