With potential interest rate cuts from the US Federal Reserve on the horizon, decentralized finance (DeFi) returns are set to revive, according to analysts at research firm Bernstein.
DeFi Yields Poised to Revive as US Rate Cuts Approach, Says Bernstein
Analysts Gautam Chhugani, Mahika Sapra, and Sanskar Chindalia believe that a rate cut of perhaps 25 or 50 basis points could rekindle interest in DeFi and the broader crypto lending markets.
“With a rate cut likely around the corner, DeFi returns are looking attractive again. This could be a catalyst to reboot crypto lending markets and revive interest in DeFi and Ethereum,” the Bernstein team wrote in a report published today.
DeFi, a major area of the crypto ecosystem, allows participants to earn yields from stablecoins like USDC and USDT through decentralized lending platforms.
Despite the decline following the “Summer of DeFi” of 2020, stablecoin lending rates on platforms like Aave still offer yields between 3.7% and 3.9%.
With the Federal Reserve potentially taking a dovish stance, analysts believe crypto lending markets are reawakening, with the total value locked (TVL) in DeFi doubling from its 2022 lows to $77 billion.
But it’s still halfway to its 2021 peak. Monthly DeFi users have also increased by three or four times from previous lows.
Stablecoins, which are critical to DeFi operations, are currently backed by approximately $178 billion in reserves. The number of monthly active wallets is hovering around 30 million, signaling that the DeFi market is recovering.
Bernstein analysts predict that as rates fall, DeFi stablecoin returns could exceed 5%, potentially outperforming US dollar money market funds.
This shift could fuel a revival in crypto lending markets and push digital asset prices higher.
*This is not investment advice.
