Treasury bills constitute 80.2% of the reserves held by major stablecoins.
The top five centralized stablecoins’ revenue streams are anticipated to be impacted by the US Federal Reserve’s recent decision to lower interest rates for the first time since March 2020.
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.
According to the report, 80.2% of the reserves held by the largest stablecoins are made up of Treasury bills.
Therefore, any drop in interest rates has an immediate impact on their earnings.
Market Anticipates 75bps in Rate Cust by End of 2024
The market expects 75 basis points in rate cuts by the end of 2024, according to data from CME Group’s FedWatch tool. This includes a 50 basis point cut in November and a further 25 basis point cut in December.
Stablecoins may lose an additional $937.5 million in revenue if these forecasts come true, making the total possible loss from the Fed’s easing policy $1.5625 billion.
With $93.2 billion in T-bills and repurchase agreements, Tether’s USDT has the biggest portion of Treasury-backed reserves among the impacted stablecoins.
In the first half of 2024, Tether reported a $5.2 billion net profit, primarily due to rising interest rates.
With $28.7 billion in Treasury holdings through its Circle Reserve Fund, Circle’s USD Coin (USDC) comes in second.
Smaller Treasury positions are held by other stablecoins like TrueUSD (TUSD), PayPal USD (PYUSD), and First Digital USD (FDUSD), which are $1.83 billion, $634 million, and $502 million, respectively.
Their profit margins are probably going to be further pressured by the anticipated drop in interest rates.
Stablecoins have proven resilient in the face of possible financial setbacks.
According to CCData, September saw a rise in the overall market capitalization of stablecoins of 1.50% to $172 billion, which represents the 12th consecutive month of growth.
But the total market capitalization is still lower than it was prior to May 2022, when Terra Luna depegging occurred.
As of September 23, trading volumes on centralized exchanges had decreased by 39.4% to $683 billion.
The stablecoin market is still dominated by USDT, which accounts for 77.2% of all trading activity 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 previously reported, the top three megabanks in Japan are starting a pilot program to use stablecoins to expedite international settlements.
SBI Holdings and Japan Exchange Group-backed Progmat, a blockchain platform, will issue stablecoins as part of the “Project Pax” initiative.
Mizuho, Sumitomo Mitsui Banking Corporation (SMBC), and Mitsubishi UFJ Financial Group (MUFG) are the banks involved.
The trial will investigate the application of cross-chain technology for quicker and more effective transactions. Datachain and TOKI, two blockchain companies, are also involved.
Meanwhile, Ripple’s CEO Brad Garlinghouse has revealed that the company is in the process of launching a stablecoin in Japan soon.