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Stablecoins are facing new challenges. With USD interest rates hitting 0% and US Treasury yields turning negative, it’s becoming increasingly hard to earn a profit simply by holding USD in reserve or by purchasing US Treasury bills.

While some stablecoins operate using alternative business models, those stablecoins which rely on such rates and yields for their revenues are now in a serious bind.

However, while analysts believe that relying on interest rates will no longer be possible in the current environment, they aren’t expecting any major stablecoin issuers to go bust. Most will either weather the storm by operating at a loss during the crisis (assuming the crisis isn’t that protracted), while others will diversify their sources of revenue in order to manage.

Stablecoins and negative interest rates

“Many stablecoins fund operational expenses through interest on funds held to back their issued coins, but a 0% or negative interest rate environment would definitely create problems for this model,” explains Brant Downes, a research analyst with Smith + Crown.

Here, Downes is referring to stablecoins such as Tether (USDT), USD Coin (USDC),

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Author: Simon Chandler


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