Fidelity Sees Benefits for DeFi and Stablecoins in Potential Fed Rate Cuts

Institutions may renew their interest in DeFi products and stablecoins if yields in TradFi decline due to the policies of the Federal Reserve. This forecast was presented by Fidelity.

Analysts noted that the Federal Reserve’s rate hikes have driven institutions away from the crypto space towards safer traditional fixed-income instruments.

According to the report, DeFi platforms are vulnerable to hacks and exploits and have complex user interfaces.

“In an environment of prevailing risk aversion, institutions found the yields offered by protocols too low for the associated risks,” the research stated.

In 2024, as this disparity decreases and infrastructure develops, institutional investors are expected to show interest in DeFi, analysts predicted.

This could be driven by the approval of spot Bitcoin ETFs, the popularization of RWA, and growing demand for scalable infrastructure for dapps.

Fidelity also noted the anticipated interest in dollar-denominated assets as a “key potential catalyst” for cryptocurrency adoption.

TradFi firms interested in stablecoins could lend legitimacy to “stablecoins.”

Payments, remittances, and international trade are identified as three main sectors that will see increased adoption of stablecoins, as users seek faster and cheaper payment methods, specialists indicated.

Fidelity highlighted the strong prospects for establishing a “clearer and more defined” regulatory framework for stablecoins, which will not prevent USDT and USDC from maintaining their positions in the sector.

According to analysts, another driver will be the expected reduction in Federal Reserve interest rates.

In 2024, Fidelity also anticipates further popularization of cryptocurrencies, the emergence of new Bitcoin-based projects, innovations in its mining, and Ethereum hard forks that will reduce fees and enhance user experience.

The blockchain team of the second-largest cryptocurrency by market capitalization will conduct the Dencun hard fork in test networks in the first two months of 2024.

Earlier disappointing macroeconomic data did not affect expectations of a Federal Reserve key rate cut in March.