Fed Rate Cuts Will Trigger The Next DeFi Summer

Summary

Podcast Summary: Markets Outlook – “Fed Rate Cuts Will Trigger The Next DeFi Summer”

Host: CoinDesk
Guests: Sanath (Monarch Asset Management), others
Date: September 29, 2025

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Episode Overview

In this episode, CoinDesk discusses how the Federal Reserve’s recent interest rate cuts could drive the next major boom (“DeFi summer”) in decentralized finance. The conversation explores the impact of macroeconomic trends on crypto, shifts in DeFi risk and stability, the institutionalization of the space, and the merging lines between traditional finance (TradFi) and DeFi.

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Key Discussion Points & Insights

1. The Value of In-Person Networking

• [00:08–00:34]
  • The speakers recall meeting in person en route to a conference, emphasizing the importance of real-life (IRL) connections over digital networking.
  • Quote: “If you sent me a message amazing on LinkedIn, I might have just ignored it for a year or something.” — Host [00:13]

2. Macro Trends: The Fed’s Influence on DeFi Yields

• [00:35–01:54]
  • Sanath (Guest, Monarch Asset Management) specializes in DeFi strategies and focuses on the direct impact of U.S. Federal Reserve policy.
  • Recent Fed rate cut of 25 basis points (bps) significantly influences crypto by:
    • Lowering the “risk-free” rate (e.g., T-bills), making DeFi yields more attractive.
    • Promoting a “risk-on” environment, leading to increased risk-taking in DeFi and higher yields.
  • Quote: “If I had to say, the single biggest factor that impacts defi yields is the Fed monetary policy.” — Sanath [01:54]

3. TradFi and DeFi Are Converging

• [02:14–03:09]
  • Traditional finance (TradFi) players are moving into crypto, particularly via real-world asset (RWA) tokenization.
  • Examples: Apollo, Hamilton Lane (RWAs); Fidelity (on-chain client services).
  • Predicts a convergence of TradFi and DeFi within 2-3 years.

4. Is Another DeFi Summer Coming?

• [03:09–04:37]
  • The host notes the parallel to “DeFi Summer 2020,” asking whether the current environment sets up for a new boom.
  • Sanath reflects on the stark contrasts: now multi-chain, with dramatically lower gas fees and $150B+ in Total Value Locked (TVL) vs. just $10M and a handful of Ethereum-based protocols five years ago.
  • Institutional players and risk management tools have professionalized the space.
  • Quote: “Absolutely, we are now, I think, in the beginning of the next DeFi summer — or the DeFi fall, I guess now it is.” — Sanath [03:56]
  • Quote: “DeFi has become a lot more institutionalized… very bullish DeFi, very bullish.” — Sanath [04:37]

5. How DeFi Risk Has Evolved

• [05:09–06:57]
  • The host recalls the 2021 “wild west” of sky-high APYs and frequent rug pulls, contrasting it with the current, more stable environment.
  • Sanath says the space has matured with:
    • Projects like Superform (an “on-chain wealth manager” launching at the conference, integrated with Coinbase) making DeFi more accessible and robust.
    • The primary risks have shifted:
      • Away from smart contract hacks and rug pulls.
      • Toward stablecoin “depeg” risks (i.e., whether numerous stablecoins will maintain their pegs to reference assets like USDT).
  • Quote: “The risk profile of DeFi has shifted from smart contract hacks and rug pulls to now depeg risks.” — Sanath [06:29]
  • Quote: “It’s literally night and day compared to 2020.” — Sanath [07:00]

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Notable Quotes

• On Macro’s Power Over DeFi:
  “The single biggest factor that impacts defi yields is the Fed monetary policy.” — Sanath [01:54]

• On DeFi’s Institutional Growth:
  “DeFi has become a lot more institutionalized… very bullish DeFi, very bullish.” — Sanath [04:37]

• On Changes in DeFi Risk:
  “The risk profile of DeFi has shifted from smart contract hacks and rug pulls to now depeg risks.” — Sanath [06:29]

• Reflecting on the Early Wild West:
  “In five years from now it was the wild west... people would go in and out and... people also got rug pulled. That's changed a lot.” — Sanath [05:47]

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Key Timestamps for Segments

| Timestamp | Topic | |---------------|-----------------------------------------------------| | 00:08–00:34 | IRL networking and conference value | | 00:35–01:54 | Macro trends: Fed rates and DeFi yield | | 02:14–03:09 | TradFi–DeFi convergence & RWA tokenization | | 03:09–04:37 | The new DeFi summer: growth since 2020 | | 05:09–06:57 | DeFi risk evolution: from hacks/rugs to depegs | | 06:29–07:00 | Night-and-day difference in DeFi’s risk profile |

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Tone and Takeaways

The tone is optimistic yet grounded, with an emphasis on how much DeFi has matured and institutionalized. Panelists are bullish about the space’s future, anticipating both greater stability and more mainstream adoption as macroeconomic factors, most notably Fed policy, open the door for another major DeFi surge.

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Summary by Markets Outlook Podcast Summarizer

Transcript

[A]

Foreign. Welcome to the show.

[B]

Thanks for having me, Jen.

[A]

Thanks for being here. Now I just want to highlight something. The value of IRL conferences. You and I actually met on the plane into Korea and now you're sitting here at the desk. I want to say if you sent me a message amazing on LinkedIn, I might have just ignored it for a year or something.

[B]

It is incredible.

[C]

Good to be cooped up for feeling for 15 hours together on a fight.

[A]

So you can meet your colleagues in the times.

[B]

Things are just meant to happen.

[A]

Yeah, exactly. All right, you are on a panel, I believe it's happening right after this interview. It's called Making Sense of Macro. Talk to me about the major macro trends you're watching in this region and outside of it.

[B]

Yeah, so just as a background. So Monarch Asset Management, we are classic multi strategy investment manager in the crypto space and I run the defi strategies at Monarch. And so everything I look at is kind of the lens of defi and, and yield. And so one of the things that really impacts defi at the macro level is the Fed monetary policy. Right. And it is interesting. So the Fed, as we all know, Fed dropped interest rates. It cut interest rates by 25 bips last week. What that does is it's very interesting about the impact in DeFi. There's two impacts. One is that when the Fed cuts interest rates, the risk free rate in public markets goes down, which then makes the rate in defi more valuable. Right. So today you can earn 4 to 6% on AAVE and morpho and that's great. But when the Fed, when the T bill rate goes down into the, you know, three, three and a half percent, this becomes a lot more interesting. The second thing that happens when the Fed cuts rates is that it becomes a risk on.

[D]

Right.

[B]

There's a lot more money in the market, people take more risks, they're coming in into defi, they're levering up on perps and all that again causes the yields to go up. So for us, if I had to say, the single biggest factor that impacts defi yields is the Fed monetary policy. That's what we've been looking at.

[C]

And when you think of macro, I feel like yield is what so many people talk about. And do you see a future where Tradfi has to start figuring out how to match the yields of defi?

[B]

Yeah, absolutely. So I think, you know, this is one of the big trends, if you will, that's happening where we're starting to see tradfi players coming into, into crypto we've seen that in multiple places. We've seen that on the real world asset side where we have, you know, players like Apollo and, and Hamilton Lane coming in half, they're tokenizing and real world asset products. On the flip side, we actually have the fidelities of the world who are allowing their clients to be on chain. Right. And so we're absolutely going to see that. I think in the next couple of years, maybe three years, we're going to start seeing, I think that convergence of TRADFI and Defi.

[A]

You mentioned you're watching Fed rate cuts. Fed cut rates by 25 bips recently. I think they're saying two more rate cuts coming this year. I know you got into DEFI during the Defi Summer of 2020. Are we heading towards another defi summer?

[B]

Yeah, so yeah, January, five years is a long, long time in crypto. And so yeah, I started my previous fund at the beginning of DeFi summer in 2020. And back then it's just, just so different from where we are now.

[D]

Right.

[B]

So back then I think it was all Ethereum.

[D]

Right.

[B]

There were no other chains really with the defi on it and gas fees were like, you know, I don't know, 50 to $100 per transaction. There was only maybe about 10 or so DeFi protocols, maybe about 10 million locked in. And there were lots of smart contract hacks. You know, the whole space was very rug pulled. Now we fast forward five years out and to answer your question, absolutely, we are now, I think in the beginning of the next defi summer or the defi fall, I guess now it is, it's literally so now we have about $150 billion on chain, right. In total value locked. Ethereum is still the leader, but now we have a whole bunch of other side chains where a lot of the transaction happens. So with the L2s, you have the gas fees come down significantly. It makes more sense for people to transact. Defi has become a lot more institutionalized.

[D]

Right.

[B]

So we have players like us coming in, we're actively managing funds on chain, we're deploying into vaults. And also I think on the risk side, interestingly enough, the risk management side, we now have tools like hypernative that, you know, allow you to monitor suspicious activity and get out, you know, if something's going wrong. So I'm very, very bullish Defi, very bullish. And I do think that in the next four or five years it's going to get even more institutionalized and, and you have way more TVL than there's now.

[C]

I'm remembering though 2021ish where we were being promised 3000% API on certain projects. There was a lot of like quick money in, do it for a couple of days while everyone else comes in, take it out. And it left a bad taste in a lot of people's mouths back then. And I'm wondering now it feels much more stable. People really understand what DEFI is. It's not a get rich quick scale scheme. It's really just an investment strategy. But I'm just interested in what are the biggest risks you're seeing today still for those who want to invest in DeFi.

[B]

Yeah, Sam, so you know the stuff that you mentioned where. Yeah, you're absolutely correct.

[D]

Right.

[B]

In five years from now it was the wild west, right. And you were getting the 3,000% returns and people would go in and out and. But people also got rug pulled. That's changed a lot. And I mean just going to give you two interesting examples, right. One is that we're starting to see protocols like there's a new app called Superform that's launching in fact at this conference, Superform XYZ, they are trying to bring the next 100 million to 1 million people on chain. And they started off actually as a yield farming app. They aggregated 2,000 different apps and now what you can do is they've actually tied up with Coinbase and then you can actually transfer money and then just deposit. So they become like an on chain wealth manager.

[D]

Right.

[B]

So we're seeing a lot of that behavior. And in terms of risks, interestingly I think the risk profile of Defi has shifted from smart contract hacks and rug pulls to now depeg risks. You know, you have people at one point were worried about tether debugging from USDC. Now it's more about is stablecoin number 150 going to maintain its peg against tether?

[D]

Right.

[B]

So those are things that we now worry about and in some ways it's a good problem to have.

[D]

Right.

[B]

I think we've come a long way. There's almost 300 billion of stablecoins and we still have a ways to go I think on the risk side, but literally it's night and day compared to 2020.

[A]

Sanath, thanks so much for joining us at the desk and good luck with your panel.

[B]

Thank you. Thanks for having me.