An anticipated interest rate cut by the United States Federal Reserve could renew major institutional interest in decentralized finance (DeFi) and stablecoins as long as the infrastructure develops further in 2024, says asset manager Fidelity.
In its 2024 Digital Assets Look Ahead report released Jan. 13, Fidelity said while it expected institutions to dive into DeFi for its yields in 2023, this didn’t end up happening as Fed rate hikes pushed them to move into traditional fixed-income products, which are “perceived to be safer.”
DeFi platforms have previously been regarded as having hard-to-use interfaces and being susceptible to hacks and exploits, which have caused institutions to “scrutinize the risks associated with smart contracts.”
“In the prevailing risk-off environment institutions deemed the mid-single digit returns offered by DeFi yield to be too low for the associated risk of experimenting with smart contracts.”
However, it said 2024 could see institutions have “renewed interest” for DeFi yields if they “once again become more attractive than TradFi yields and more developed infrastructure emerges.”
Today’s #Bitcoin ETF approvals, along with the rapid growth of Real World Assets (RWAs) in DeFi, and the increasing demand for scalable infrastructure for decentralized applications mark an intriguing trend in this cycle.
It’s evident that institutions are not just warming up to… https://t.co/17HpIW97wF
— SaucerSwap Labs (@SaucerSwapLabs) January 11, 2024
Fidelity also expects corporations may get “more comfortable with the idea of putting digital assets on their balance sheet” after updated rules from the United States Financial Accounting Standards Board allowed companies to report both paper losses and gains from their crypto holdings.
Institutions to explore stablecoins
In a section on stablecoins, Fidelity predicted institutional exploration of U.S. dollar-pegged assets would be “the greatest potential catalyst” of adoption in 2024.
It said TradFi firms exploring the use of stablecoins for purposes such as settlements could “bring legitimacy” to them, and it expects “payments, remittances, and international trade” as the three main sectors to see increased stablecoin adoption as users hunt for faster and cheaper payment methods.
Related: Rollups, corporate demand, and Bitcoin-tied solutions among 2024’s crypto business trends
It added it was “likely that regulatory frameworks will become clearer, providing more certainty” and predicted that Tether (USDT) and USD Coin (USDC) won’t lose any ground in 2024.
“It is expected that this area of the market continues to gain traction throughout 2024,” Fidelity wrote, adding, “Potentially more so if anticipated Federal Reserve interest rate cuts occur.”
Magazine: MakerDAO’s plan to bring back ‘DeFi summer’ — Rune Christensen
This article was originally published by a cointelegraph.com . Read the Original article here. .
