According to World Bank figures, 2020 was the lowest year for global economic development since 1961. The COVID-19 virus was one of the causes.
Economic development has been stifled, resulting in a 3.35 percent reduction in GDP compared to 2019.
As a result of this situation, the government and the central bank implement policies that encourage people to spend their money rather than save it.
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 the interest and rewards they receive have decreased. So, in this condition, many institutional investors are looking for alternatives, and one of them is entering the Decentralized Finance (DeFi) sector. The Government and Central Bank Expansive Policy
The current economic conditions have forced the governments and central banks in the majority of countries to use expansionary policies.
Expansive policies are all policies that will be carried out to increase the money supply.
The purpose of the policy is to re-encourage public consumption and then to encourage economic growth to recover.
In this situation, the government is doing everything it can to provide aid funds. The central bank will also be asked to advocate for expansionary policies, such as lower interest rates.
Lowering the benchmark interest rate is intended to reduce people's incentives to save. Because by lowering the central bank's benchmark interest rate, commercial banks will lower all interest rates on their services.
A Decline in Institutional Investor Profits
These reductions include lower interest rates on loans, which lower the cost of borrowing from banks; and lower savings rates, which reduce the incentive to save. Unfortunately, interest rates or returns from other investment products such as deposits will also decrease.
Because the government and the central bank are pushing to increase the circulation of money, all things that involve the storage or locking of money will be reduced in incentives.
This means many institutional investors as well as retail investors in the conventional market will experience a decline in their passive profits.
The reason for this statement is the behavior of investors who seek profit through several banking products such as high-interest time deposits and savings accounts.
It seems that institutional investors have run to the crypto world, especially the Decentralized Finance or DeFi sector, in search of more attractive profits.
This phenomenon was also recognized by the CEO of Triv, Gabriel Rey, who stated that,
"Now the players are not just retail investors like us but institutional investors who are starting to look for interest through DeFi."
This condition is also the reason why the DeFi sector has experienced significant growth in the past year.
Rapid Growth by the DeFi Sector
This phenomenon of institutional fund transfers shows an increase in the total value locked or the number of funds locked in the DeFi sector. It was discovered that the amount of funds locked in the DeFi Sector increased by 486.43 percent between January 2021 and now.
The majority of this funding is expected to come from institutional investors, as well as from a growing DeFi phenomenon known as DeFi Summer.
This forecast is based on the amount of funds held by institutional investors who are capable of making such a large gain. The inflow of funds from institutional investors also encourages many retail and new investors to investigate DeFi.
So, due to institutional investors as well as retail investors who give mutual effects to each other in the DeFi sector, locked funds are seen to continue to grow.
The 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 implies that there is a significant and unavoidable analysis of the current growth of DeFi. As can be seen, the DeFi sector is currently one of the top destinations for retail and institutional investors.
As a result, if you want to take advantage of the entire crypto world, exploring it should be a priority.
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