Battle of the Finances

For technology visionaries, decentralised finance (DeFi) is seen as the hammer that will destroy the shackles of traditional finance (TradFi). However, for DeFi to succeed, strength in numbers is required.

• DeFi has done a pretty good job at increasing its users, but how have DeFi protocols lured the masses into joining their cause?
• According to LoanScan, in January 2021, market participants could earn a yield between 6.58% to 12.93% on USDC. At the same time, the Federal Reserve (FED) set interest rates at 0.25%. DeFi must have been a pretty hard sell right?
• It wasn’t. It was a no-brainer actually… But as the crypto climate worsened, and USDC yields dropped to around 1.9% in January 2022, the key question began to emerge: what would happen to DeFi if yields converged with those of TradFi?
• Although yields fell almost 85% from January 2021 to January 2022, they have never fallen below the yield offered by TradFi institutions, until Coinbase’s new announcement.
• Coinbase will now be offering its users 1.5% APY on their USDC. According to Bankrate, users can earn around 3% if they chose to deposit money into a traditional savings account. Not only will they earn almost twice the yield, but they would also avoid any smart contract or regulatory risk posed by holding USDC.

With increasing uncertainty in the world, those with a lower risk tolerance may begin considering moving toward more conservative yield mechanisms offered by traditional institutions.