Stablecoins Outperform US Government Bonds: Curve’s 3pool Yields Higher Returns
As the world of decentralized finance continues to grow, the returns from depositing stablecoins on Curve‘s 3pool are increasingly outperforming those of U.S. government bonds. Curve’s 3pool is a liquidity base pool that provides crypto traders a capital-efficient means of swapping between the top three stablecoins – USDT, USDC and DAI. This decentralized exchange offers higher yields than traditional fixed–income markets, making it an attractive option for investors looking for higher returns. With the gap between the returns of Curve‘s 3pool and U.S. government bonds widening, it is clear that stablecoins are becoming an increasingly attractive option for investors.
3pool: A DeFi Savings Bank Account with High Yields
3pool, also known as Tri–pool, is a decentralized finance (DeFi) savings bank account that has become increasingly popular during the 2021 bull run. Investors can park their stablecoin holdings on the pool in return for an annualized percentage yield (APY) that is higher than the 10–year U.S. Treasury yield. The APY comprises a share in trading fees and supplemental fee income via Curve‘s governance token CRV. At press time, the seven–day moving average of 3pool‘s APY stands at 0.98%, or 250 basis points less than the 10–year U.S. Treasury yield. This provides investors with an attractive opportunity to earn higher yields on their stablecoin holdings. Matrixport‘s head of strategy and research, Markus Thielen, noted that the spread between treasury yields and stablecoins was negligible a year ago, making 3pool‘s high yields an attractive option for investors.
The Federal Reserve’s Aggressive Tightening Cycle: How Rising Interest Rates Impact DeFi Yields
The Federal Reserve‘s aggressive liquidity tightening cycle has had a dramatic impact on the 10–year yield, which has nearly doubled year–on–year. The benchmark interest rate has been raised by 425 basis points to 4.25%, with rates expected to further rise to nearly 5% later this year. This tightening cycle has had a ripple effect on the DeFi yield market, which has seen a crash from its double digits range in early 2021. As the liquidity–powered crypto bull market started to run out of steam in mid–2022, DeFi yields have been hit hard. This article will explore the impact of the Federal Reserve‘s tightening cycle on DeFi yields and the implications for investors.
Stablecoin Yields Drop Relative to Treasury Yields
As the world economy began to recover from the pandemic in early 2022, analysts were optimistic that the Federal Reserve‘s rate hikes would boost demand for all assets linked to the US dollar, including stablecoins. However, since August 2022, the yields offered by dollar–pegged stablecoins have dropped relative to Treasury yields, disproving the strategy of parking money into stablecoins. This has caused investors to re–evaluate their strategies and look for alternative investments. With the current market conditions, it is important to understand the risks and rewards of investing in stablecoins and other assets linked to the US dollar.
Stablecoin Prospects Dimmed by Rising Bond Yields
As the global economy continues to improve, the International Monetary Fund (IMF) has released an optimistic growth forecast. This is likely to keep longer–duration bond yields elevated, making it difficult for stablecoins to gain traction. The Federal Reserve has also announced plans to lift the benchmark rate above 5% this year and keep it there for some time, further dimming the prospects of stablecoins. This means that the gap between stablecoins and traditional currencies is unlikely to narrow anytime soon. Investors should be aware of the implications of rising bond yields on the stability of stablecoins and plan their investments accordingly.
