Fidelity Forecasts Renewed Institutional Interest in DeFi and Stablecoins Amid Potential Rate Cuts
Summary:
Fidelity predicts a resurgence in interest from major institutions in decentralized finance (DeFi) and stablecoins amidst potential Federal Reserve interest rate cuts in the US. Despite previous hesitations due to blockchain vulnerabilities and perceived low returns, enhanced infrastructure in 2024 could make DeFi yields more attractive. Institutions are also expected to explore dollar-pegged stablecoins, which could become a catalyst for crypto adoption in sectors like payments, remittances, and international trade. Simultaneously, updated rules allowing companies to report crypto losses and gains may increase corporations' comfort with digital assets on balance sheets.
Significant institutions may be reigniting their interests in decentralized finance (DeFi) and stablecoins, should there be a drop in the Federal Reserve's interest rate in America and progress in the supporting infrastructure, as per Fidelity's projection. On January 13, Fidelity published its Digital Assets Look Ahead report for 2024, stating that despite expectations of institutions being drawn towards DeFi yield opportunities in the past year, the reality was different due to the Fed's rate increments leading them towards traditional fixed-income products deemed safer.
Historically, DeFi platforms have been seen as having intricate interfaces vulnerable to cyber threats and exploitation, raising cautiousness among institutions towards the risks smart contracts bring. Institutions found DeFi yields' returns below ten percent to be underwhelming for the potential risks related to the experimentation with smart contracts in the contemporary risk-averse scenario.
However, Fidelity anticipates a refreshed interest from institutions in DeFi yields in 2024, should they prove to be more promising than TradFi yields and enhanced infrastructure materialize. Current approvals of Bitcoin ETFs, the rapid growth of Real World Assets in DeFi and a rising demand for scalable infrastructure for decentralized applications hint at an exciting trend.
Notably, with the United States Financial Accounting Standards Board (FASB) introducing new rules allowing businesses to report both their cryptocurrency losses and gains, Fidelity predicts a growing trend of corporations becoming comfortable with the notion of adding digital assets to their balance sheets.
The report also suggests that institutional exploration of stablecoins, assets tethered to the dollar, could be a major factor driving adoption this year. Traditional finance companies delving into stablecoins for operations such as settlements could validate them. Payments, remittances, and international trade are forecasted to be the primary sectors witnessing increased stablecoin adoption as users pursue quicker and more economic payment options.
Lastly, the report mentioned it's probable that regulatory frameworks will see further clarity, thus inspiring more reliability. It also foresaw that Tether (USDT) and USD Coin (USDC) will maintain their positions in 2024. This market sector's continued growth throughout 2024 is expected, especially if Federal Reserve interest rate cuts are introduced, as per Fidelity.
Published At
1/15/2024 7:23:03 AM
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