Key facts:
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DeFi returns could top 5%, says Bernstein.
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The interest rate cut could be 0.25% or 0.50%.
With a potential interest rate cut by the US Federal Reserve (Fed) on the horizon, Ethereum could stand to gain from this economic adjustment.
In this case, decentralized finance (DeFi), where the Ethereum network leads the way, are ready to re-emerge with force, if the interest rate cut is carried outwhich could be announced on Wednesday, September 18, according to specialists from the research and brokerage firm Bernstein,
“With a rate cut just around the corner, DeFi yields are looking attractive again. This could be the catalyst to restart crypto lending markets and revive interest in DeFi and Ethereum,” They stated analysts Gautam Chhugani, Mahika Sapra and Sanskar Chindalia.
They further highlighted that DeFi yields could exceed 5%, which would be above the returns of US dollar money market funds, reviving credit markets and would add momentum to digital asset prices.Currently, benchmark rates in the United States are in a range of 5.25% – 5.50%, a ceiling for the last 20 years.
The tool FedWatch of the CME Group, which measures market expectations of the Fed’s moves, estimates that There is a 61% chance that the Fed will cut rates by 0.5%and 39% believe the cut will be 0.25%, as shown in the following graph.
Probabilities of US interest rate cuts. Source: FedWatch.
Such a move could encourage investors to borrow money and place it in riskier assets, such as cryptocurrencies and stocks. In this context, Ethereum, which is key to DeFi, would be directly favored.
As there is increased activity in network protocols Ethereumincreases the demand for ETH, its native Cryptocurrency. This is because ETH is used to pay for ‘gas’ in DeFi transactions. Consequently, The more activity there is on these protocols, the more demand there will be for ETH.which could push its price up in the markets.
DeFi shows encouraging numbers
In addition, the number of monthly DeFi users has shown a notable increase, rising from 60 million in June to 86 million in early September, representing a 43% growth in just a few months, according to data from Dune Analytics.
This increase is also reflected in the total value locked (TVL) in DeFi, which has doubled since the lows of 2022, reaching $82 billion today, according to data from DeFiLlama.
Of this total, Ethereum accounts for $44 billion, equivalent to 55% of the TVLconsolidating itself as the most used network within the DeFi sector.
Ethereum TVL. Source: DeFiLlama.
DeFi lending platforms also have experienced growth significant so far this year, with an increase in funds managed from $21 billion to $30 billion.
Thus, interest rate cuts Not only could they fuel interest in DeFi, but they could also further boost Ethereum.its ecosystem and its cryptocurrency ETH.
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