An increase in the interest rate offered by the Federal Reserve could hit hard deflationary cryptocurrencies, according to Robert Leshner, who spoke with Fortuna why he founded a company called Compound.
Fed expected Hike interest rate
In the interview, Leshner points out that cryptocurrency has so far only existed in a low-interest US economy. As this begins to reverse, a series of rate hikes by the Federal Reserve have put the crypt into unexplored waters.
Currently, the probability of an increase in interest rates of 200-225 basis points at the next Fed meeting, scheduled for November 8, is over 90%.
Leshner believes this could severely affect the encrypted markets. He says:
We are finally starting to enter a growing interest rate environment that cryptography has never seen before and will be potentially challenging for the price of many cryptographic resources, just as it will be for many activities in general, including actions.
If we save money in a bank, we can earn interest. The bank pays for this by lending our money to other people in exchange for more interest. This is obviously a very simplified explanation, and in recent times, the amount of interest we can gain has been minimal.
Perhaps this is why no one has asked questions: "Why can not we do the same with our crypto-assets, because nobody will pay to keep our bitcoins?"
To rectify this, Leshner, the self-proclaimed boy of interest rates, formed the company, Compound. It allows token holders to memorize their cryptocurrency and earn interest.
Although it does not currently support bitcoins 00, lists four tokens and is trying to include others. Currently it allows users to vote on which stablecoin to add.
Stablecoins Are In
Leshner expects an influx of stablecoin to the market, arguing that it could soon be more than 50. Not surprisingly, so many companies are competing to enter the space, due to the obvious benefits for the issuers.
Investors who are eager to purchase these currencies are essentially limited to lending money to zero-issuers. And often they pay the transaction fees for the honor. It's hard to say, but … would not it be better to go to the bank?
Compound offers an interest payment market in which listed currencies can be lent or borrowed. Leshner hopes that the increase in the fiat currencies obtained with the tokenise traders and arbitrators on his site.
Asked about the advantages of a market like the compound, on the already established forex markets, he said:
The advantage of tokenization is that it brings transparency and programmability to the currency. When the dollars are open to the blockchain there is so much more innovation that it can happen.
Will the increase in interest rates damage deflationary cryptocurrencies? Share your thoughts below!
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