According to a report by Cointelegraph, Fidelity Digital Assets, a digital asset investment department under asset management company Fidelity, stated that the expected Fed rate cut may 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 indicated that while it had anticipated institutions to enter DeFi for yields last year, this ultimately did not happen as the Fed rate hike led them to turn to “perceived safer” traditional fixed income products.
DeFi platforms were previously seen as having difficult-to-use interfaces and being susceptible to hacking and exploitation, factors that prompted institutions to “carefully examine smart contract-related risks.” The report stated:
However, the report noted that if DeFi yields “become more attractive than TradFi (traditional finance) yields again, and more mature infrastructure emerges,” institutions may develop a “rekindled interest in DeFi yields” in 2024.
Fidelity also expects that after the Financial Accounting Standards Board (FASB) updates guidelines to allow companies to report realized gains and losses on held cryptocurrencies, companies may be “more willing to include digital assets on their balance sheets.”
Institutions exploring stablecoins
In a paragraph regarding stablecoins, Fidelity predicts that institutions exploring USD stablecoins this year will be the “largest potential catalyst for adoption.”
Fidelity stated that TradFi companies exploring the use of stablecoins for settlement and other purposes could bring “legitimacy” to stablecoins, and expects that as users seek faster, cheaper payment methods, “payments, remittances, and international trade” will be the three major areas of stablecoin adoption growth.
The company added that “regulatory frameworks may become clearer, providing greater certainty,” and predicted that Tether (USDT) and USDC will not lose any market share in 2024. Fidelity wrote: