Analysts at research and brokerage firm Bernstein predict a rebound in decentralized finance (DeFi) yields as the U.S. Federal Reserve approaches a potential rate cut, which could take place on Wednesday with a reduction of 25 to 50 basis points. According to Gautam Chhugani, Mahika Sapra, and Sanskar Chindalia, as interest rates decline, DeFi returns are regaining appeal, potentially reigniting interest in DeFi and Ethereum, and reviving the crypto lending market.
DeFi platforms enable global participants to earn yields on stablecoins such as USDC and USDT by providing liquidity to decentralized lending markets. Despite the fading memories of the high yields generated through token incentives during the DeFi summer of 2020, the largest lending market on Ethereum, Aave, still offers stablecoin lending yields of 3.7% to 3.9%.
DeFi Ascends Once More
The analysts observe that as the interest rate cycle becomes more accommodative, a new crypto cycle is gathering momentum, with the crypto lending market experiencing a resurgence. Although the total value locked (TVL) in DeFi is only half of its 2021 peak, it has doubled from its 2022 low to $77 billion, and monthly DeFi users have tripled or quadrupled since then. Stablecoin market caps have also recovered to around $178 billion, and monthly active wallet numbers are steady at about 30 million, indicating signs of recovery in the crypto DeFi market that is expected to accelerate as rates fall.
Betting on Aave and Returning to Ethereum
Reflecting this trend, Bernstein has added AaveToken to its digital asset portfolio, replacing derivatives protocols GMX and Synthetix. Aave’s total outstanding debt has tripled since January 2023, and despite a relatively stable or slightly declining Bitcoin price, AaveToken has risen 23% in the past 30 days. The portfolio also includes BTC, ETH, OP, ARB, POL, LDO, SOL, UNI, LINK, and RON.
The analysts suggest that the revival of the DeFi lending market on Ethereum could attract large whales and institutional investors back to the crypto lending market, providing a turning point for Ethereum’s underperformance against Bitcoin. They conclude that it may be time to refocus on DeFi and Ethereum.
Gautam Chhugani holds long positions in various cryptocurrencies, indicating a bullish stance on their future performance and a direct investment in these assets with the expectation of price appreciation.
Views: 0