The recent decision by the United States Federal Reserve to cut interest rates for the first time since March 2020 is expected to have an impact on the income streams of the top five centralized stablecoins. A report by CCData indicates that 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 rate cut. Treasury bills make up 80.2% of the reserves held by major stablecoins, so any reduction in interest rates directly affects their revenue. Market predictions suggest a total of 75 basis points in rate cuts by the end of 2024, meaning stablecoins could face a potential revenue loss of $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) holds $28.7 billion in Treasury holdings through its Circle Reserve Fund, while other stablecoins such as First Digital USD (FDUSD), PayPal USD (PYUSD), and TrueUSD (TUSD) hold smaller Treasury positions. Despite potential revenue losses due to declining interest rates, the stablecoin market has shown resilience, with the total market capitalization of stablecoins increasing by 1.50% in September to reach $172 billion.
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%. In Japan, the top three megabanks are launching a pilot project called “Project Pax” to speed up international settlements using stablecoins issued by Progmat, a blockchain platform supported by SBI Holdings and Japan Exchange Group. The trial will explore the use of cross-chain technology for faster and more efficient transactions.
Ripple’s CEO Brad Garlinghouse has also revealed that the company is in the process of launching a stablecoin in Japan soon. These developments suggest that the stablecoin market is evolving and adapting to changing economic conditions and technological advancements. Despite the potential revenue losses for stablecoins due to interest rate cuts, the market continues to grow and attract investment. It will be interesting to see how stablecoin issuers respond to these challenges and opportunities in the coming months and years, as the digital asset ecosystem continues to evolve. Overall, the stablecoin market remains dynamic and resilient, demonstrating its ability to adapt to changes in the global financial landscape.
