The rise of DeFi amid low interest rates

The modern DeFi ecosystem has thrived in an environment shaped by low and in, some cases, even negative interest rates. When central banks reduce interest rates, the returns on savings accounts, bonds and other traditional financial products diminish whereby pushing investors to seek alternative sources of yield. This trend has been particularly pronounced since the 2008 financial crisis, as successive rounds of quantitative easing (QE) drove down yields on government bonds and made conservative investments far less attractive. In this context, DeFi protocols began to look akin to an exciting alternative for those looking for levels of income higher than traditional savings accounts. DeFi platforms enable users to “yield farm” by locking up their crypto assets to earn rewards. These rewards come from interest paid on loans, transaction fees within decentralised exchanges (DEXs) and governance tokens issued by various blockchains. With annual percentage yields (APYs) sometimes reaching…