Fixed Income: A Missing Component In DeFi's Evolution

According to Cointelegraph, the decentralized finance (DeFi) sector has seen rapid growth, yet it still lacks a crucial financial element: fixed income. In a recent discussion on the podcast 'Hashing It Out,' Elisha Owusu Akyaw conversed with Brandon Goh, co-founder and CEO of Treehouse, about the significance of fixed income for DeFi's long-term stability and its potential to attract institutional investors. Fixed income, encompassing assets like bonds and savings accounts, is a cornerstone of traditional finance but has not gained significant traction in the crypto space. Goh points out that while DeFi has developed derivatives, lending platforms, and decentralized exchanges, it lacks a foundational benchmark rate similar to the London Interbank Offered Rate (LIBOR). The absence of standardized rates poses a challenge to scaling fixed-income products within a decentralized framework. Goh explains that the industry has overlooked an entire asset class, rendering it nearly non-existent in the current DeFi landscape. He emphasizes the need for missing infrastructure, particularly benchmark rates, to establish a robust fixed income asset class. To address this gap, Goh suggests the creation of a decentralized offered rate (DOR), an onchain benchmark aimed at enhancing market efficiency and transparency. Treehouse's model, as highlighted by Goh, enables users to earn predictable returns while managing risks associated with yield-generating products. The conversation further delves into how institutions might enter the DeFi space. Goh argues that major financial entities are unlikely to engage in high-risk DeFi strategies but may begin with stable, transparent yield opportunities such as staking. A dependable fixed-income market could serve as a gateway, facilitating the integration of traditional finance with the crypto world. Goh anticipates that DeFi will shift towards sustainable growth, moving away from unsustainable high-yield incentives. As regulatory clarity improves and infrastructure develops, fixed income could become a fundamental aspect of DeFi's next evolutionary phase. This discussion sheds light on a vital yet underdeveloped area of DeFi that could significantly influence the industry's future as it aims for mainstream acceptance.