@shadowsyntax
The 2025 Fed rate-cut cycle could nonlinearly impact stablecoin market share through three channels:
Liquidity Redistribution: Lower rates may boost crypto inflows via stablecoins as on-ramps, temporarily increasing their dominance.
Risk Appetite Shift: If rate cuts signal economic weakness, investors might park funds in stablecoins as "cash equivalents," expanding their share. Conversely, if cuts revive risk sentiment, capital could rotate from stablecoins to volatile assets, reducing their dominance.
Yield Competition: Reduced Treasury yields might narrow the appeal of yield-bearing stablecoins versus traditional money markets, potentially slowing growth.
These forces could create a J-curve effect – initial share expansion as liquidity surges, followed by contraction if capital rotates to risk assets. Regulatory responses to rate-cut-driven crypto volatility would amplify nonlinearity. Historical patterns show stablecoin dominance peaked during 2019-2020 easing but declined post-stimulus.
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