Cryptocurrencies are only now beginning to provide an environment that matches traditional finance: ways to earn more stable and predictable returns, similar to bonds or savings products, according to Aave Labs founder Stani Kulechov and Ethena CEO Guy Young.
“Most of fixed income is like risk sharing in different formats…basically just dividing and spreading risk,” Young said during a panel at the Digital Asset Summit (DAS) in New York. “This piece of DeFi was probably the least prominent two years ago.”
Until recently, cryptocurrency users mostly traded tokens or borrowed against them, often chasing high and unpredictable returns. The new tools make it possible to ensure returns, even in a market known for large swings.
“What you’re doing with Pendle is providing a fixed-to-floating rate swap,” Young said, referring to a system that allows users to choose between more stable or more variable returns, similar to choosing between fixed or adjustable interest rates.
That’s not easy in crypto. “It’s very difficult to know in three months what the market will really be like,” he said.
Kulechov said Aave has helped support this shift by providing large reserves of capital that other projects can tap into. “Aave is acting as a liquidity sink,” he said, helping to “drive many of the new DeFi products.”
For now, much of the money made still depends on trading and not traditional loans. “Much of DeFi performance… is still largely based on… leverage,” Kulechov said.
Over time, that could change as more real-world assets move on-chain, a process known as tokenization.
“A lot of the returns and a lot of the economics will come from traditional finance,” he said.
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