According to a report by Cointelegraph, Fidelity’s digital asset investment department, Fidelity Digital Assets, has stated that the expected interest rate cut by the Federal Reserve could reignite institutional interest in decentralized finance (DeFi) and stablecoins, provided that the infrastructure continues to develop this year.
In its “2024 Digital Assets Outlook” report released on January 13th, Fidelity Digital Assets stated that although it anticipated institutional involvement in DeFi for yield purposes last year, it did not materialize as the Federal Reserve’s interest rate hike led institutions to shift towards “perceived safer” traditional fixed-income products.
DeFi platforms have been perceived as having difficult-to-use interfaces and being susceptible to hacking and exploitation, which prompted institutions to “scrutinize risks associated with smart contracts”. The report stated that if DeFi yields become “more attractive than TradFi (traditional finance) yields again, and a more mature infrastructure emerges,” institutions may regain interest in DeFi yields in 2024.
Fidelity also expects that after the Financial Accounting Standards Board (FASB) updates its guidelines, allowing companies to report gains and losses from holding cryptocurrencies, companies may be “more willing to include digital assets on their balance sheets.”
In the section regarding stablecoins, Fidelity predicts that institutional exploration of USD stablecoins this year will be the “greatest potential catalyst” for adoption. Fidelity states that TradFi companies exploring the use of stablecoins for settlement purposes could bring “legitimacy” to stablecoins, and it expects “payments, remittances, and international trade” to be the three major areas of growth for stablecoin adoption as users seek faster and cheaper payment methods.
The company adds that “regulatory frameworks may become clearer, providing greater certainty,” and predicts that Tether (USDT) and USDC will not lose any market position in 2024. Fidelity concludes by stating that they expect stablecoins to “play an increasingly important role in the digital asset ecosystem.”
