The $170 billion supply of stablecoins could potentially support demand for tokenized Treasuries, according to Standard Chartered's Alexandre Dechatre.
The Fed is likely to cut rates on Wednesday, beginning what's known as a liquidity easing cycle.
The Federal Reserve is likely to cut interest rates this Wednesday for the first time since 2020, ending the most aggressive monetary tightening in decades.
The looming low interest rate environment will likely reduce demand for tokenized Treasuries, or digital representations of U.S. Treasury securities that can be traded on the blockchain, according to a number of observers, including Arthur Hayes, chief investment officer of Maelstrom and co-founder of BitMEX.
However, stablecoins could mitigate the negative impact on treasury and money market tokens, according to Alexandre Dechatre, regional head of sponsorship coverage for Asia at Standard Chartered.
“The $170 billion stablecoin stock is dry powder that can be funneled into money market tokens and Treasury tokens, potentially providing a cushion against the negative impact of the Fed’s rate cuts,” Dechatre told CoinDesk during an SC Ventures press conference on the sidelines of the Token2049 conference in Singapore. SC Ventures is the innovation arm of Standard Chartered.
According to federal funds futures, the market is currently pricing in 100 basis points of rate cuts this year, meaning the benchmark borrowing cost will fall to 4.5% by year-end. Still, that’s an attractive yield compared to passively holding stablecoins, Dechatre joked.
Last month, Paris-based Kaiko said the market for tokenized Treasury bonds would remain active as long as real or inflation-adjusted interest rates remained stable.
According to rwa.xyz , the market cap of tokenized treasury products has grown from $100 million to more than $2 billion since early January, largely due to increased interest in the U.S. BlackRock's U.S. dollar institutional digital liquidity fund has attracted more than $500 million. The Fed's sharp rate hike cycle starting in March 2022 has also spurred demand for dollar-pegged stablecoins.
