Fed rate cuts are likely to help push bitcoin and other risk assets higher, but some stablecoin issuers could suffer a hit to their revenue. Stablecoins are now collectively the 18th largest holder of U.S. Treasurys, with more than $120 billion of them backing different coins, and Bernstein recently called them an increasingly “systemically important” asset class . Tether (USDT) and USD Coin (USDC) dominate the market, making up 70% and 21%, respectively, according to CryptoQuant. “For most of these stablecoin issuers, the core business model is making the product free and retaining all of the interest that’s being earned from the Treasurys that are being purchased,” said Kevin Lehtiniitty, CEO of Borderless.xyz, a payments and stablecoin liquidity infrastructure company. “As rates begin to fall, that has a giant impact on their [profit and loss] and their bottom line.” “They’re really stuck in this box where the rates determine their revenue,” he added. “You’re going to start to see more fees start to develop … fees around minting or burning the tokens, fees around maybe transacting in the token, which is going to really decrease the value proposition of using a particular token.” Stablecoins – cryptocurrencies that promise a fixed value peg to another asset, usually the U.S. dollar – are widely seen as crypto’s killer app. Their roughly $170 billion market cap has been reaching all-time highs in recent weeks as investors park their funds in them, while waiting for bitcoin to move meaningfully in one direction or another . They’re largely used today for trading and as collateral in decentralized finance, or DeFi, and crypto investors watch their activity closely for evidence of demand, liquidity and activity in the market. However, they’re also becoming increasing popular for their ability to move dollars faster, thanks to their underlying blockchain technology – allowing for many nontrading uses like saving money abroad in U.S. dollars, getting better currency conversion rates, earning a yield and sending money internationally. By “increasing the velocity of money” stablecoins can make capital more accessible and liquid, accelerate economic activity and enhance financial efficiency, H.C. Wainwright analyst Kevin Dede said in a recent note . Jeremy Allaire, CEO of USDC issuer Circle, told CNBC lower interest rates are “a very good thing” for the company because lower interest rates will likely increase investment and economic activity – which would benefit the company. “Lower interest rates means that more capital is going to get put to work … that the velocity of money will increase, and the demand for a technology utility with the highest velocity of money in the world, which is stablecoin money, will grow,” he said. The company will continue to diversify revenue streams though. Allaire emphasized that Circle’s core product goes beyond the USDC coin itself to an “internet-scale network utility” that provides a stablecoin network open to developers and financial institutions in addition to individual users. For example, the payments company Stripe allows U.S. merchants to accept USDC payments for online transactions. “We are well positioned to keep providing the platforms, the infrastructures, the utility to do that and, of course, be an issuer of digital dollars, digital euros, and the like,” he said. “You should expect from Circle that we’re going to build new products that we monetize, separate and away from the USDC in circulation,” he added. “What’s really going to matter is going to be who has the biggest networks – with the most utility, with the most applications and users, developers that are building and connecting on those networks, just like other internet platforms.”
