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Cryptocurrency News Articles
The Fed’s Rate Cuts Will Erase $1.5B From the Revenue of Major Stablecoins
Sep 28, 2024 at 04:54 am
The United States 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
The recent decision by the United States Federal Reserve to cut interest rates for the first time since March 2020 is set to have a significant impact on the revenue streams of the top five centralized stablecoins.
Collectively, these stablecoins hold nearly $125 billion in US Treasury bills, with Treasury bills accounting for 80.2% of major stablecoin reserves, according to a report by index provider CCData on Sept. 27.
With each 50-basis-point (bps) cut, these stablecoins stand to lose an estimated $625 million in interest income.
According to data from CME Group’s FedWatch tool, markets are pricing in a 75-bps rate cut by the end of 2024, including a 50-bps cut in November and an additional 25-bps cut in December.
These 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, the report noted.
Among the stablecoins, Tether’s USDt (USDT) leads the group 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, largely driven by interest rates.
Next is Circle’s USD Coin (USDC) with $28.7 billion in Treasury holdings through its Circle Reserve Fund.
Meanwhile, First Digital USD (FDUSD), PayPal USD (PYUSD) and TrueUSD (TUSD) hold smaller positions in Treasury assets, with holdings of $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 12th consecutive month of growth, according to CCData.
However, the overall market cap still remains below what it was before the Terra Luna depegging event in May 2022.
Trading volumes on centralized exchanges have been decreasing, with a 39.4% decline to $683 billion as of Sept. 23, suggesting a possible decline in monthly trading volumes.
Traditionally, September marks the end of seasonality effects and often signals the start of increased trading activity, the report noted.
On centralized exchanges, USDt remains the most popular stablecoin, accounting for 77.2% of all trading volume.
FDUSD is the second most traded stablecoin with a market share of 11.6%, followed by USDC at 10.9%.
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