Crypto – Stablecoins and DeFi will explode thanks to FED cuts

A possible cut in FED interest rates in 2024 could cause an influx of institutional investors towards decentralized applications (DeFi) and stablecoins. This is what emerges from a study published by asset manager Fidelity. If traditional rates fall, DeFi yields will once again become attractive for crypto investors looking for gains.

Institutional investors attracted by DeFi returns

According to Fidelity, institutional investors could have been interested in the returns offered by DeFi protocols and crypto in 2023. However, faced with the Fed’s rate increases, they preferred to turn to traditional bond products, deemed safer.

With single-digit rates, DeFi gains seemed too low given the perceived risks: complex interfaces, security flaws, smart contracts, etc.

But in 2024, the scenario could reverse if the Fed eases its monetary policy. With traditional rates falling, DeFi yields would become competitive again. Therefore, institutional investors would be tempted to invest capital there.

However, this requires advances in terms of security and ergonomics of DeFi platforms. Infrastructural progress will be decisive in reassuring crypto investors about the reliability of smart contracts. With reinforced safeguards, risks will be more acceptable.

Stablecoins as a potential entry point

According to Fidelity, the adoption of stablecoins could also be a vector entry point for institutional investors in the crypto market this year. Their use for cross-border settlement or payment purposes is attracting growing interest.

As a digital version of traditional currencies like the dollar, stablecoins reassure with their reduced volatility. Their exploitation by “TradFi” players would help to legitimize them.

Fidelity anticipates regulatory progress around stablecoins in 2024. Clarified legal frameworks would provide more guarantees to potential crypto users. Leaders Tether and USD Coin could emerge strengthened.

Interest should particularly come from the payments sector. Stablecoins have the potential to speed up and lower transaction costs. Sectoral adoption for international regulations seems possible in the long term.

If Fed rates fall, the appeal of stablecoins increases tenfold. They will constitute a preferred entry point into crypto for many institutions looking for returns.

The Fidelity study highlights the close link between monetary policy and crypto adoption. If the Fed eases the cost of money in 2024, DeFi and stablecoins could see a massive influx of institutional investors. This hypothesis nevertheless remains conditional on progress in terms of crypto infrastructure and regulation. But it illustrates the potential for crypto innovations to gain credibility with “TradFi” players.

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