According to data from the World Bank or the World Bank, 2020 was the year with the worst global economic growth since 1961. One of the reasons is Covid-19.
The hampered economic growth resulted in a decrease in the gross domestic product of up to 3.405% compared to 2019.
Given this condition, the government and central bank generally issue policies that encourage people to spend their money instead of saving.
The aim is to re-encourage the circulation of money and re-invigorate economic growth.
However, this policy is not always welcomed by constitutional investors, who will be disadvantaged because their interests and rewards have decreased.
So in this condition, many institutional investors are looking for alternatives, and one of them is entering the Decentralized Finance (DeFi) sector.
Expansive Policies of the Government and Central Banks
The current economic conditions have forced most countries’ governments and central banks to use expansionary policies.
Comprehensive policies are all policies that will be carried out to increase the money supply.
The policy’s purpose is to re-encourage public consumption and encourage economic growth to recover.
In this condition, the government does everything possible to provide aid funds.
The central bank will also be asked to push for expansionary policies, one of which is lowering the benchmark interest rate.
The purpose of lowering the benchmark interest rate is to reduce people’s incentives to save.
Because by lowering the benchmark interest rate from the central bank, commercial banks will reduce all interest rates in their services.
The Decline in Institutional Investor Profits
These declines include lower interest rates on loans, which lower the cost of borrowing from banks, and lower savings rates, which reduce the incentive to save.
Because the government and the central bank are pushing to increase the circulation of money, all things that involve the storage or locking of funds will be reduced in incentives.
This makes many institutional investors, as well as retail investors in the conventional market, experience a decline in their passive profits.
The reason for this statement is the behaviour of investors who seek profit through several banking products such as high-interest time deposits and savings accounts.
Institutional investors have run to the crypto world, especially the Decentralized Finance or DeFi Sector, in search of more attractive profits.
This phenomenon is also recognized by Triv’s CEO, Gabriel Rey, who stated that,
“Nowadays the players are not only retail investors like us, but institutional investors who are starting to look for interest through DeFi.”
This condition is also why the DeFi Sector has experienced significant growth in the past year.
Rapid Growth by the DeFi Sector
This phenomenon of the movement of funds by institutional investors shows the growth in total value locked or the number of funds closed in the DeFi Sector.
There was an appreciation of 486.43% in the number of funds locked in the DeFi Sector from January 2021 until now.
Most of this funding is expected to come from institutional investors and a growing DeFi phenomenon called DeFi Summer.
This prediction comes due to the number of funds held by institutional investors who can make an appreciation of this magnitude.
The incoming funds from institutional investors also encourage many retail investors and new investors to start exploring DeFi.
So, as a result of institutional investors as well as retail investors who give mutual effects to each other in the DeFi Sector, locked funds seem to continue to grow.
CEO of Triv, Gabriel Rey, also stated that the large number of retail investors who plunged into the world of DeFi was due to the trust in institutional investors. He stated,
“If institutional investors have entered (into the DeFi Sector) it is a sign that something big is going on, because they must have done deep research first. So it is not surprising that there is an increase in DeFi transactions by institutions and retailers.”
This statement indicates an analysis of the current growth of DeFi, which is quite significant and cannot be avoided.
So it can be seen that the DeFi Sector is one of the leading destinations for retail and institutional investors.
Therefore, exploring it can be considered a priority if you want to take advantage of the entire crypto world.
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