The Federal Reserve's recent interest rate cuts are poised to significantly impact the interest earnings of major centralized stablecoins. According to CCData, the five largest stablecoins, which hold nearly $125 billion in U.S. Treasury bonds, could see a reduction of $625 million in interest income for every 50 basis point (bps) cut.

In its latest report, CCData reveals that 80.2% of the reserves of these stablecoins are tied to U.S. Treasuries, making them highly susceptible to interest rate fluctuations. As the Fed is expected to further reduce rates by 75 bps through 2024, this could translate into an additional $937.5 million loss in earnings, potentially totaling $1.5 billion.

The CME Group’s FedWatch tool suggests that markets are pricing in a 50 bps cut in November, followed by another 25 bps cut in December. These combined reductions would further squeeze stablecoin profit margins, particularly for those heavily invested in Treasuries.

Leading the pack is Tether (USDT), with a whopping $93.2 billion in U.S. Treasuries and repo agreements. Despite the impending cuts, Tether reported $5.2 billion in net profit for the first half of 2024, largely driven by interest rates.

Circle’s USD Coin (USDC) follows closely behind, holding $28.7 billion in U.S. Treasuries via its Circle Reserve Fund. Meanwhile, First Digital USD (FDUSD), PayPal USD (PYUSD), and TrueUSD (TUSD) hold smaller positions, with $1.83 billion, $634 million, and $502 million in Treasuries, respectively.

Lower interest rates will inevitably increase pressure on the earnings margins of stablecoins, but they continue to dominate the market. In September alone, the total market cap of stablecoins grew by 1.50%, reaching $172 billion—a 12-month streak of consecutive growth, despite remaining below the pre-Terra Luna depeg event of May 2022.

Trading volumes, however, have been on a decline. Centralized exchange volumes dropped by 39.4%, down to $683 billion as of September 23. Despite this, historically, September marks the end of seasonal trends, often leading to a rebound in trading activity as we move into Q4.

In the world of stablecoins, USDT continues to reign supreme, commanding 77.2% of all trading volume on centralized exchanges. FDUSD holds the second spot with an 11.6% market share, while USDC follows with 10.9%.

The coming months will reveal how stablecoins navigate the economic landscape, but one thing is clear: Fed policy changes will be a key factor in shaping their financial health. Stay tuned for more updates as the stablecoin market reacts to these macroeconomic shifts!