Decentralized Finance (DeFi) has been expanding throughout the year and it has helped a large number of individuals to get access to financial products such as lending or borrowing, among other things. However, researchers consider that it may be necessary for the DeFi market to add new fixed-rate solutions that would help traditional investors enter the crypto market.
Fixed Rate Lending Could Help DeFi
According to Jack Purdy, a researcher at the crypto analytical company Messari, fixed rate lending has been lacking in the Decentralized Finance market. He stated that these investments are one of the most important investing methods in the global financial system.
For example, one of the positive aspects of fixed rate lending is the fact that they can provide certainty for lenders and borrowers that need clear information on costs and return on capital. At the same time, these investment tools could provide valuable data related to investor sentiment.
As Jack Purdy explained on Twitter, when the yield curve inverts it is because investors expect central banks will lower the rates in the future. In this way, the short-term interest rates will be higher than those in the long-term.
Mr. Purdy went on saying that in the cryptocurrency market, these curves could also play an important role in providing valuable information to investors.
About it, he stated:
“Yield curves could steepen when the next big corporate announces a BTC purchase as it may mean we’re in the next bull market. Lenders will then a require a higher return on capital since the opportunity cost of lending is higher.”
Meanwhile, if another altcoin is shilled by analysts and crypto figures in the market, investors may prefer to move towards stablecoins with low-rate solutions.
At the moment there are some DeFi protocols that are offering fixed-term solutions for crypto holders. Some of these protocols include UMA Protocol, Maker DAO, Mainframe and many others. However, the offer is still limited and new services should also appear in the future. Some cryptocurrency exchanges are already offering DeFi solutions. In the future, it may be possible to see new fixed rate interest products offered to users in some of the largest crypto platforms in the world.
He finally mentioned that fixed rate products sare going to be useful for both newcomers to the industry and expert investors that are searching for new solutions to diversify their investments in the market.