Fed’s Rate Cuts to Slash $625M in Stablecoin Interest Income, CCData Reports

The United States Federal Reserve’s recent decision to cut interest rates for the first time since March 2020 is expected to impact the income streams of the top five centralized stablecoins.

According to a report by CCData released on September 27, these stablecoins, which collectively hold nearly $125 billion in U.S. Treasury bills, could lose approximately $625 million in interest income for each 50-basis-point (bps) rate cut.

The report reveals that Treasury bills constitute 80.2% of the reserves held by major stablecoins.

As a result, any reduction in interest rates directly affects their revenue.

Market Anticipates 75bps in Rate Cust by End of 2024

Data from CME Group’s FedWatch tool indicates that the market anticipates 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 materialize, 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 holds the largest share of Treasury-backed reserves, amounting to $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 driven by higher interest rates.

Circle’s USD Coin (USDC) follows with $28.7 billion in Treasury holdings through its Circle Reserve Fund.

Other stablecoins such as First Digital USD (FDUSD), PayPal USD (PYUSD), and TrueUSD (TUSD) hold smaller Treasury positions of $1.83 billion, $634 million, and $502 million, respectively.

The expected decline in interest rates is likely to put additional pressure on their profit margins as well.

Despite these potential financial setbacks, the stablecoin market has shown resilience.

In September, the total market capitalization of stablecoins increased 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, before the Terra Luna depegging event.

Trading volumes on centralized exchanges have also seen a downturn, falling by 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, holding an 11.6% market share, followed by USDC with 10.9%.

Japanese Megabanks to Trial Cross-Border Stablecoin Transfer

As reported, Japan’s top three megabanks are launching a pilot project aimed at speeding up international settlements using stablecoins.

The initiative, called “Project Pax,” will involve stablecoins issued by Progmat, a blockchain platform supported by SBI Holdings and Japan Exchange Group.

The banks involved include Mitsubishi UFJ Financial Group (MUFG), Sumitomo Mitsui Banking Corporation (SMBC), and Mizuho.

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 has revealed that the company is in the process of launching a stablecoin in Japan soon.