The Best Investment Manager's Guide to DeFi Yields and Crypto Credit Markets in 2023
With the Federal Reserve Set to Cut Interest Rates, DeFi Yields Are Back in Focus - Bernstein Analysts
Are you looking for the next big investment opportunity? Look no further than the exciting world of DeFi yields and crypto credit markets. According to analysts at Bernstein, the upcoming interest rate cut by the Federal Reserve could be the catalyst to reignite the crypto credit markets.
The Decentralized Finance (DeFi) system has been instrumental in bootstrapping crypto credit markets, allowing traders to borrow against crypto collateral. During the 2020-2021 crypto boom, DeFi yields were boosted by incentives from application tokens, making them highly attractive. However, as interest rates increased in 2022-2023, even standard USD stablecoin yields became less appealing.
But now, with the rate cycle turning dovish and a new crypto cycle on the horizon, DeFi markets are gaining momentum once again. On platforms like Aave, lending yields for stablecoins are already hovering around 3.7% to 3.9%. Bernstein estimates that these yields could surpass 5% if demand for credit continues to rise.
Various metrics indicate a recovery in the DeFi market, with the total value locked in DeFi protocols reaching $77 billion. The number of unique monthly DeFi users has tripled or quadrupled since January 2023, and the supply of fiat-backed stablecoins in circulation has hit a record high of $158 billion.
Bernstein has recognized this trend and added the token to its digital assets basket, replacing derivative protocols. The total outstanding debt on Aave has tripled since the January 2023 low, and the Aave token has seen a 23% increase in the last 30 days.
While Ethereum has been underperforming compared to Bitcoin, Bernstein believes that rebuilding DeFi lending markets on the Ethereum mainnet could attract large investors back to the crypto credit markets. This could lead to a turnaround for Ethereum and help it outperform Bitcoin in the future.
In conclusion, the resurgence of DeFi yields and crypto credit markets presents a lucrative opportunity for investors in 2023. By keeping an eye on these trends and understanding the potential of DeFi and Ethereum, investors can position themselves for success in the rapidly evolving world of cryptocurrencies.