Bitcoin’s Boom Is Not Good News For This DeFi Sector

Bitcoin’s Boom Is Not Good News For This DeFi Sector

Tokenized US treasuries were one of the most successful examples of decentralized finance (DeFi) during last year’s weak market. By issuing them as on-chain assets, DeFi customers obtained access to one of the most secure and dependable investment vehicles in the conventional market.
However, since the beginning of 2024, investors’ demand for such ventures has decreased significantly, with the majority turning to riskier investments such as cryptocurrency for higher profits.

Bitcoin’s gain is tokenized treasuries’ pain

On-chain expert Tom Wan highlighted the unfavourable association between investments in tokenized treasuries and the price of Bitcoin [BTC]. As the world’s largest cryptocurrency increased from $38k to $64k, the on-chain treasury market collapsed.

Furthermore, the growth curve of methods offering exposure to US treasuries has halted. Ondo Finance and Mountain Protocol, two of the sector’s largest brands, suffered monthly TVL decreases of 0.1% and 0.26%, respectively, according to AMBCrypto’s analysis of DeFiLlama data.

Not looking too optimistic?

Last year, a dismal macroeconomic atmosphere and a hawkish Federal Reserve drove favourable rates on US government paper. Their later tokenization allowed Web3 users to reap these guaranteed rewards as well. This was a period when the cryptocurrency market had stalled.

However, as the market has heated up in recent months, many investors have abandoned the steady 5% income in favour of double-digit, and even triple-digit profits. Given widespread predictions of the Fed reducing interest rates, tokenized treasuries are expected to remain cool in the coming months.

Tom Han, while advising the builders of these projects, said,

“In my opinion, U.S. Treasuries protocols should focus on adoption and integration instead of product expansion.”

He noted that, while the notion of tokenizing shares and bonds seems appealing, the industry is exposed to regulatory problems. He also advised incorporating these items into layer 1 and layer 2 networks to increase their acceptance.

Author: Simeon

Simeon is a seasoned crypto writer with a passion for exploring the fascinating world of blockchain and digital currencies. With a background in finance and technology, Simeon brings a unique perspective to his writing, delving into the complexities of decentralized finance, cryptocurrency trading, and emerging blockchain projects.

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