“The time has come to adjust policy,” Fed Chair Jerome Powell said on Friday. Interest rate cuts won't be deep – especially in real terms. Issuers of tokenized Treasuries do not see cuts as a major threat.
Federal Reserve Chair Jerome Powell confirmed traders must on Friday already know: A reduction in interest rates is coming.
However, market players say businesses that offer or rely on tokenized treasuries that benefit from higher interest rates need not worry. News said earlier this month.
That lack of concern is prevailing now that Powell has confirmed interest rate cuts, according to issuers of tokenized Treasuries.
in decade Before the Fed started raising interest rates to fight inflation, there wasn't much difference between holding cash and holding Treasuries, says Jim Hiltner, head of business development at Superstate. News.
“Now, it's clear, and I believe it will continue to be,” he said.
Issuers of tokenized treasuries include multitrillion-dollar asset managers BlackRock and Franklin Templeton, as well as firms with a background in crypto such as SuperState.
With $93 million in assets under management, Superstate, which launched in January, is the sixth-largest issuer of tokenized securities.
“You have an incentive for the Federal Reserve to continue the tough environment with high-ish rates, but they're not going to bring them back to zero in the next six months. That's not going to happen unless the economy falls off a cliff.”
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Is the goal accomplished?
Interest rates remained above zero for several years after the Great Recession. Although they began to creep up during Donald Trump's presidency, they returned to zero when the pandemic hit, with policymakers pulling out all the stops in an effort to avert economic disaster.
The subsequent recovery was much faster than they expected. Along with chronic, post-pandemic supply chain issues, prices have started to skyrocket. The Federal Reserve, tasked with balancing stable prices and low unemployment, raised interest rates to their highest level since mid-2007.
The effective federal funds rate — the median interest rate on overnight loans among US banks — hit 5.33% a year ago and has remained there ever since.
High rates have boosted DeFi projects, finding the relatively high risk not worth their yield. But it's a boon for projects like MakerDAO that invest in treasuries.
The yields from those Treasuries are above 5% – a profitable and safe way to earn from otherwise dormant assets.
In just a few months, money invested in projects offering tokenized treasuries flew From about $750 million in March to more than $1.9 billion today, according to data from RWA.xyzAn analytics firm that tracks the tokenization of real-world assets like Treasuries, stocks, and bonds.
But the Fed's strategy worked – inflation is now well above the Fed's 2% target. Meanwhile, a cooling labor market suggests a recession may be on the way, forcing the central bank to revisit its strategy.
“Inflationary losses have come down. And the downsides to employment have increased,” Powell said Said Friday at the Fed's annual meeting in Wyoming.
“It's time to adjust the policy.”
'Dezen Mode'
Martin Carica, co-founder of Mountain Protocol, a stablecoin issuer that uses tokenized treasuries as collateral — and passes that yield on to stablecoin holders — isn't too concerned about how low rates will affect his business.
“Obviously, 5% is better than 2%,” he said NewsThe Goldman Sachs Savings Account represents the return it offers when it grows to $100 billion in consumer deposits. (Goldman's Marcus now offers an interest rate above 4%.)
“The critical point for me is how much money can be made with 'funny money' (eg token incentives) [versus] How many yielding assets contribute,” says Karika.
“If you can lend USDC and get a 6% APY kicker on XYZ token, why would you go with that? [Mountain’s] USDM?”
High-risk, high-reward DeFi yields will become more attractive as interest rates drop, though Hiltner says he doesn't fear competition from the unregulated badlands of the crypto economy.
“Maybe you're a retail person or some degenerate who doesn't want to go into a regulated security, you can go and get 4.91% in USDC” by lending on Aave, he said.
“It caters to a specific audience. It is not suitable for everyone. You have big institutional hedge funds with hundreds of millions of dollars saying, 'Yeah, we'd love USDC rates to be 8%, but I'm not interested in doing that'.”
Plus, as rates fall and people go into “dezen mode,” winners want to keep their winnings in cash — or better yet, yield-bearing cash equivalents like tokenized Treasuries, Hiltner said.
“It's a better waystation, for lack of a better word [investors] “To freeze capital so it doesn't earn zero and reduce returns,” Hiltner said.
According to Keiko, a crypto research firm, even if the Fed starts cutting rates, “real” interest rates may remain stable or rise.
“Cutting rates does not necessarily mean easing monetary policy,” the company said in its latest statement Research note.
“If the Fed lowers nominal rates and inflation falls at the same pace or faster, real rates (which are nominal rates adjusted for inflation) may remain stable or rise.” Indeed, interest rates adjusted for the producer price index “have risen modestly this year, despite the Fed holding nominal rates steady,” Keiko said.
Alex Gilbert News'Diffie correspondent from New York. You can reach him at [email protected].
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