Stablecoins May Cushion Fed Rate Cut Impact on Treasury Tokens, Standard Chartered’s Regional Head Says

• The $170 billion stablecoin supply could potentially underpin demand for tokenized Treasuries, Standard Chartered’s Alexander Deschatres said.

• The Fed will likely cut rates on Wednesday, starting the so-called liquidity easing cycle.

The Federal Reserve will likely cut interest rates this Wednesday for the first time since 2020, ending the most aggressive monetary policy tightening in decades.

According to several observers, including Arthur Hayes, chief investment officer of Maelstrom and co-founder of BitMEX, the impending low interest rate environment is likely to curtail demand for tokenized Treasuries or digital representations of U.S. treasury securities that can be traded on the blockchain.

However, stablecoins could cushion the negative impact on Treasury and money market tokens, according to Alexander Deschatres, regional head of sponsors coverage for Asia at Standard Chartered.

“The $170 billion stablecoin supply represents a dry powder that can be channeled into money market tokens and Treasury tokens, potentially providing a cushion from the negative impact of Fed rate cuts,” Deschatres told CoinDesk during the SC Ventures’ media event on the sidelines on the Token2049 conference in Singapore. SC Ventures is an innovation arm of Standard Chartered.

According to Fed funds futures, the market is currently pricing 100 basis points of rate cuts this year, which means the benchmark borrowing cost will drop to 4.5% by the year-end. Still, that is an attractive yield compared to passively holding stablecoins, Deschatres quipped.

Last month, Paris-based Kaiko data said the market for tokenized Treasuries will remain active while real or inflation-adjusted interest rates remain stable.

The market cap for tokenized Treasury products has surged from $100 million to over $2 billion since early January, predominantly due to elevated interest in the U.S., according to data source rwa.xyz. BlackRock’s USD Institutional Digital Liquidity Fund has attracted over $500 million in inflows. The Fed’s steep rate hike cycle that began in March 2022 also catalyzed demand for the dollar-linked stablecoins.