Federal Reserve’s Rate Cut Could Spark Institutional Interest in DeFi and Stablecoins, Fidelity Predicts
The United States Federal Reserve’s potential interest rate cut could reignite major institutional interest in decentralized finance (DeFi) and stablecoins, according to asset manager Fidelity.
In their recently released 2024 Digital Assets Look Ahead report, Fidelity suggests that this resurgence is contingent on the further development of DeFi infrastructure throughout 2024.
Fidelity had previously anticipated institutional forays into DeFi due to its attractive yields in 2023, which did not materialize as expected.
Instead, institutional investors were driven towards traditional fixed-income products due to Federal Reserve rate hikes, which were perceived as a safer bet in a risk-averse environment.
DeFi platforms had long been plagued by complex user interfaces and susceptibility to hacks, causing institutions to carefully assess the risks associated with smart contracts.
In the risk-off environment, the mid-single digit returns offered by DeFi were deemed too modest compared to the perceived risks of experimenting with smart contracts.
Nonetheless, Fidelity believes that 2024 may see institutions rekindle their interest in DeFi yields if they become more attractive than traditional finance (TradFi) yields once again, coupled with the emergence of more advanced infrastructure.
Fidelity also anticipates that corporations will become more open to the idea of adding digital assets to their balance sheets.
The shift comes as updated rules from the United States Financial Accounting Standards Board allow companies to report both paper losses and gains from their crypto holdings.
In addition to DeFi, Fidelity’s report highlights the growing interest in stablecoins among institutional players.
The report suggests that the
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