The stablecoin industry is facing a major blow after the Federal Reserve lowered interest rates. This move will significantly reduce the amount of money stablecoin companies make from their investments.
Stablecoins Rely on Interest Rates
Most of the top five stablecoin companies keep their money in US Treasury Bills, which are like government bonds. These bonds pay interest, and that interest is a big part of how stablecoin companies make money.
Lower Rates Mean Less Profit
When the Fed cuts interest rates, the interest paid on Treasury Bills goes down. This means stablecoin companies will earn less money from their investments. According to CCData, the top five stablecoin companies could lose around $625 million in annual interest income for every 0.5% cut in interest rates.
Tether Takes a Hit
Tether, the biggest stablecoin company, holds a massive amount of money in Treasury Bills. They made over $5 billion in profit in the first half of 2024, and a large part of that was from interest earned on their investments.
Other Stablecoins Also Affected
Other major stablecoin companies like USDC, FDUSD, PYUSD, and TUSD also hold Treasury Bills, so they will also see their profits shrink.
Diversification Efforts
Tether has recently invested in an Argentinian agroindustrial company, possibly as a way to diversify their investments and reduce their reliance on Treasury Bills.
Important Note:
This information is for general knowledge and should not be considered investment advice. Always do your own research before making any investment decisions. /p>
