DeFi Yields Set for Comeback Amid Potential US Rate Cuts
Analysts at the research and brokerage firm Bernstein have indicated that decentralized finance (DeFi) yields are poised for a comeback amid the likelihood of US Federal Reserve rate cuts.
According to the analysts, the potential for a 25 or 50 basis point rate cut by the Fed on Wednesday could serve as a catalyst to reboot crypto credit markets and revive interest in DeFi and Ethereum.
"With a rate cut likely around the corner, DeFi yields look attractive again. This could be the catalyst to reboot crypto credit markets and revive interest in DeFi and Ethereum," the analysts stated in a note to clients on Monday.
Furthermore, the analysts pointed to the recovery in stablecoin supply, which has reached highs of around $178 billion, and the stable number of monthly active wallets at around 30 million, as signs of a recovering crypto DeFi market.
If the credit appetite of crypto traders rises, the analysts believe that stablecoin DeFi yields could rise above 5%, potentially beating the yields offered by US dollar money market funds. This, in turn, could further reignite crypto credit markets and add fuel to digital asset prices.
DeFi, which enables global participants to earn yields on stablecoins like USDC and USDT by providing liquidity on decentralized lending markets, has seen a resurgence in activity.
The total value locked in DeFi has doubled from its 2022 bottom to $77 billion, and monthly DeFi users have increased three to four times since the lows, the analysts noted.
In response to this trend, Bernstein has added the Aave token to its digital assets portfolio, replacing derivative protocols GMX and Synthetix.
The analysts noted that the total outstanding debt on Aave is up three times from its January 2023 bottom, and the Aave token has gained 23% over the last 30 days, despite relatively flat or down Bitcoin prices.
Furthermore, the analysts suggest that the strengthening of DeFi lending markets on Ethereum could bring large whales and institutional investors back to the crypto credit markets, providing a catalyst to stem Ether's underperformance relative to Bitcoin.
As a result, the analysts believe it may be time to turn back attention to DeFi and Ethereum.
