Fed’s dovish move to slash $625M in interest income for stablecoins

The Federal Reserve’s recent decision to cut interest rates for the first time since March 2020 is set to significantly impact the revenue streams of the top five centralized stablecoins, which collectively hold nearly $125 billion in US treasury bills.

According to a report released by index provider CCData on Sept. 27, treasury bills account for 80.2% of major stablecoin reserves. These stablecoins stand to lose approximately $625 million in interest income for each 50-basis point (bps) cut.

Data from CME Group’s FedWatch tool shows that markets are pricing in a 75-bps rate cut by the end of 2024, including a 50-bps cut in November, followed by an additional 25 bps in December.  

When combined, the possible upcoming cuts could erase an additional $937.5 million from stablecoins revenue, bringing the total revenue loss from the Fed’s easing policy to $1.5625 billion.

Tether’s USDt (USDT) leads the group of stablecoin issuers whose reserves are backed by the US treasury, with a total of $93.2 billion in T-bills and repurchase agreements. The company posted a net profit of $5.2 billion in the first half of 2024, driven by interest rates. 

Related: Robinhood, Revolut eye entry into stablecoin market — Report

Circle’s USD Coin (USDC) follows with $28.7 billion in treasury holdings through its Circle Reserve Fund, while First Digital USD (FDUSD), PayPal USD (PYUSD), and TrueUSD (TUSD) hold smaller positions in treasury assets worth $1.83 billion, $634 million, and $502 million respectively. A decline in interest rates will likely add mounting pressure on stablecoins’ profit margins.

In September, the total market capitalization of stablecoins climbed by 1.50% to reach $172 billion, marking the twelfth consecutive month of growth as per CCData. Despite this, the overall market cap remains below what it was before the Terra Luna depegging event in May 2022.

Trading volumes have been moving lower on centralized exchanges, falling 39.4% to $683 billion recorded as of Sept. 23, suggesting a possible decline in monthly trading volumes. Traditionally, September marks the end of seasonality effects and often marks the start of increased trading activity, noted the report. 

USDT remains the most popular stablecoin on centralized exchanges, accounting for 77.2% of all trading volume. FDUSD remains the second most traded stablecoin with a market share of 11.6%, followed by USDC with 10.9%.

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