Venture capitalist Arthur Cheong notes that the decentralized finance (DeFi) sector has entered a revival phase. He believes global changes in interest rates form the foundation of this movement.

Trends in Interest Rates

Cheong states that fluctuations in interest rates are directing investors toward riskier assets, particularly cryptocurrencies. A significant development occurred in September when the Fed implemented a 50 basis point rate cut. Cheong points out that this move is reminiscent of the low-interest environment that fueled the crypto bull markets of 2017 and 2020. He anticipates that this new cut could offer similar contributions to the DeFi sector.

Increase in Activity within the DeFi Ecosystem

Cheong emphasizes that low interest rates diminish the attractiveness of treasury bonds and savings accounts, accelerating investors’ search for alternative returns. The decreasing cost of borrowing increases the sector’s appeal for DeFi users, leading to heightened activity within the ecosystem. Cheong also foresees that the new interest rate cycle will facilitate the transition of traditional financial funds to DeFi, contributing to the growth of stablecoins.

The rise of DeFi is gaining momentum through the combination of economic conditions and financial innovations. Investors should focus on risk management to capitalize on opportunities during this process, as the new opportunities presented by DeFi could help introduce the sector to a broader audience.