Fidelity: “Stablecoins and DeFi are a boon”!

Fidelity, one of the world’s largest asset managers, says that the expected interest rate cut by the Fed in the US could renew interest from major institutions in decentralized finance (DeFi) and stablecoins, as long as the infrastructure continues to develop this year.

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In its 2024 Digital Assets Outlook report, published on January 13, Fidelity said it had expected institutions to turn to DeFi for yields last year, but that this did not happen as the Fed’s interest rate hikes pushed them to move into a perceived safer environment.

DeFi platforms were previously thought to have difficult-to-use interfaces and to be vulnerable to attacks and exploits, leading institutions to “scrutinize the risks associated with smart contracts.”

The report said, “In the prevailing risk-averse environment, institutions believe that the mid-single-digit yields offered by DeFi yields are too low for the risk of experimenting with smart contracts.”

However, it noted that in 2024, institutions could have a “renewed interest” in DeFi yields if they “once again become more attractive than TradFi yields and a more advanced infrastructure emerges.”

Fidelity also expects companies to be “more comfortable with the idea of putting digital assets on their balance sheets” after the updated rules of the Financial Accounting Standards Board of the United States allowed companies to report both paper losses and gains in their cryptocurrency holdings.

Institutions Exploring Stablecoins (Fidelity)

In a section on stablecoins, Fidelity predicted that the institutional exploration of dollar-pegged assets would be “the biggest potential catalyst” for adoption this year.

It said that TradFi firms exploring the use of stablecoins for purposes such as settlements could “bring legitimacy to them” and that it expects to see increased adoption of stablecoins in three key sectors: payments, remittances, and international trade, as users seek faster and cheaper payments.