Fed’s Interest Rate Reductions Expected to Decrease Stablecoin Interest Revenue by $625 Million, According to CCData

The recent choice by the United States Federal Reserve to lower interest rates for the first time since March 2020 is anticipated to influence the revenue streams of the leading five centralized stablecoins.

A report by CCData published on September 27 indicates that these stablecoins, which together possess nearly $125 billion in U.S. Treasury bills, could incur a loss of around $625 million in interest income for every 50-basis-point (bps) reduction.

The report highlights that Treasury bills make up 80.2% of the reserves maintained by prominent stablecoins.

Consequently, any decrease in interest rates has a direct impact on their earnings.

Market Expects 75bps in Rate Cuts by End of 2024

Information from CME Group’s FedWatch tool suggests that the market forecasts a cumulative 75 bps in rate reductions by the conclusion of 2024, which includes a 50-bps cut in November and an additional 25-bps cut in December.

If these forecasts come to fruition, stablecoins could experience an extra revenue decline of $937.5 million, resulting in a total potential loss of $1.5625 billion due to the Fed’s easing measures.

Among the impacted stablecoins, Tether’s USDT holds the largest portion 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, primarily attributed to elevated interest rates.

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

Other stablecoins, including First Digital USD (FDUSD), PayPal USD (PYUSD), and TrueUSD (TUSD), maintain smaller Treasury holdings of $1.83 billion, $634 million, and $502 million, respectively.

The anticipated reduction in interest rates is likely to exert further pressure on their profit margins as well.

Despite these potential financial challenges, the stablecoin market has demonstrated resilience.

In September, the overall market capitalization of stablecoins rose by 1.50% to reach $172 billion, marking the 12th consecutive month of growth, according to CCData.

However, the total market cap remains below levels seen before May 2022, prior to the Terra Luna depegging incident.

Trading volumes on centralized exchanges have also experienced a decline, dropping by 39.4% to $683 billion as of September 23.

USDT continues to lead the stablecoin market, representing 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 leading three megabanks are initiating a pilot project aimed at accelerating international settlements utilizing stablecoins.

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

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

The trial, which also includes blockchain firms Datachain and TOKI, will investigate the application of cross-chain technology for quicker and more efficient transactions.

Meanwhile, Ripple’s CEO Brad Garlinghouse has disclosed that the company is preparing to launch a stablecoin in Japan shortly.

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