Fidelity Report: Fed’s Interest Rate Cut Could Spark Institutional Interest in DeFi and Stablecoins

Fidelity Report: Fed's Interest Rate Cut Could Spark Institutional Interest in DeFi and Stablecoins

Fidelity Report: Fed's Interest Rate Cut Could Spark Institutional Interest in DeFi and Stablecoins

According to a report by Cointelegraph, Fidelity’s digital asset investment division, Fidelity Digital Assets, stated that the expected interest rate cut by the Federal Reserve could reignite institutional interest in decentralized finance (DeFi) and stablecoins, provided that the infrastructure continues to develop this year.

Institutions to regain interest in DeFi yields

In its “2024 Digital Assets Outlook” report released on January 13th, Fidelity Digital Assets stated that although it anticipated institutions to enter DeFi for yield purposes last year, this did not materialize as the Federal Reserve’s interest rate hike prompted them to turn towards “perceived safer” traditional fixed-income products.

DeFi platforms were previously seen as having difficult-to-use interfaces and being prone to hacker attacks and exploits, which led institutions to “scrutinize the risks associated with smart contracts in detail.” The report stated:

However, the report mentioned that if DeFi yields “once again become more attractive than TradFi (traditional finance) yields and mature infrastructure emerges,” institutions may regain “rekindled interest” in DeFi yields by 2024.

Fidelity also expects that after the Financial Accounting Standards Board (FASB) updates its guidelines, allowing companies to report gains and losses from holding cryptocurrencies, companies may be “more inclined to include digital assets on their balance sheets.”

Institutions exploring stablecoins

In the paragraph discussing stablecoins, Fidelity predicts that institutional exploration of the US dollar stablecoin this year will be the “largest potential catalyst” for adoption. Fidelity states that TradFi companies exploring the use of stablecoins for settlement purposes could bring “legitimacy” to stablecoins, and it expects “payments, remittances, and international trade” to be the three main areas of growth for stablecoin adoption as users seek faster and cheaper payment methods.

The company also adds that “regulatory frameworks may become clearer, providing greater certainty,” and predicts that Tether (USDT) and USDC will not lose any market position by 2024. Fidelity wrote: