Hi readers, In today's newsletter, Treehouse Labs' Jun Yong Heng and Si Wei Yue write that forward rate agreements (FRAs) serve as a foundational tool in the fixed income market to allow participants to manage expected interest rate fluctuations, and ultimately provide structure and scalability to unlock the next evolution of DeFi. Then, ChainMyne's Kimberly Rosales says that although cryptocurrencies have the potential to entirely change the economy and financial access in Latin America, their success hinges on infrastructure that prioritizes the needs of marginalized populations, regulatory clarity and educational efforts. Thanks for joining us. |
|
|
The Rate Renaissance: How Benchmark Rates Unlock DeFi's Potential |
Benchmark rates have long been a cornerstone of traditional finance (TradFi), underpinning trillions in financial instruments. Benchmarks like LIBOR and SOFR play a crucial role in determining lending and borrowing costs. However, these benchmarks have faced criticism for their centralization and vulnerability to manipulation. Notably, in June 2012, Barclays admitted to manipulating LIBOR, resulting in a $450 million settlement with U.S. and U.K. regulators. Although SOFR, as an overnight rate, resolves some of LIBOR's issues, it still faces centralization concerns, as the U.S. Federal Reserve oversees its publication. Despite these challenges, TradFi's fixed income market has continued to thrive, growing into the largest asset class in the investable universe. In contrast, the fixed income market within crypto is fragmented and opaque. Yield sources, such as staking, borrowing rates and funding rates are highly volatile, loosely correlated and often poorly understood. This lack of clarity has hindered growth in the crypto fixed income space. A potential solution? Establish an infrastructure for decentralized benchmark rates similar to those that exist in TradFi, but more robust. In crypto, we could decentralize the forecasting of these benchmark rates, incorporating fundamentals of oracle mechanisms where accurate predictions are rewarded and inaccurate ones are slashed. This way, the benchmark rate combines elements of both LIBOR's opinion-driven methodology and SOFR's transaction-based approach. By decentralizing the process, we could mitigate centralization risks and reduce the potential for manipulation, ensuring fairness in how benchmark rates are determined. Fixing fixed income with FRAs Reliable benchmarks are key to building new financial derivatives markets crucial for DeFi to mature and grow. In particular, forward rate agreements (FRAs) and other fixed income derivatives could be developed using stable benchmarks to hedge interest rate risks more effectively. In TradFi, FRAs account for approximately 10% of the global fixed-income market's total notional outstanding amount. To put this into perspective, approximately $116 billion worth of ether is currently staked. Capturing just 10% of this market via FRAs represents an $11 billion opportunity, highlighting the potential of benchmark rates in unlocking the fixed income market in DeFi. So, what are FRAs? Forward rate agreements (FRAs) allow participants to lock in future borrowing or lending rates, reducing exposure to volatile market conditions. Think of a futures contract, but instead of locking in the price of an asset, you secure an interest rate — akin to reserving a deal for the future. For example, if the current staking rate for ETH is 3.2%, an FRA would allow you to secure that rate for a future date, making your return on investment a deterministic percentage. Implementing reliable benchmarks could unlock the next evolution of DeFi — one that is not driven by speculation, but by structure, scalability and institutional-grade infrastructure. Interested in this concept? Read more about the potential of FRAs in the rest of the article here. |
|
|
The Future of Digital Asset Infrastructure in Latin America |
An overlooked monetary shift has started in Latin America that might provide actual financial liberty to large numbers of individuals while also challenging long-standing institutions. A 2024 Chainalysis analysis claims that stringent restrictions on capital and inflation levels above 100% are driving the adoption of cryptocurrencies in nations like Argentina and Venezuela. This change leads to a greater dependence on digital wallets and stablecoins to gain access to U.S. dollars beyond the established banking industry. With this digital asset infrastructure comes the immediate need for education and regulatory certainty so that this new framework does not become just another apparatus that fails the most disadvantaged. Financial literacy is one of the most significant obstacles to adoption. The intricacies of cryptocurrency can be daunting, and many people become disoriented by the deluge of perplexing internet data. Common lack of knowledge about finance poses a risk to long-term acceptance and a barrier to market adoption for institutions. Without sufficient educational systems, the usage of digital assets might continue to be restricted to unregulated or informal users — those who do business outside of the established or conventional banking system. A community-based, individualized education plan is crucial. A localized, community-oriented way of teaching is already emerging. According to the Crypto Council for Innovation, local authorities and non-governmental organizations have implemented classroom-style sessions and courses on digital wallets to educate on important subjects like stablecoin usage and private-key protection. People may confidently join the digital assets revolution once they know the fundamentals, such as what blockchain is and how to handle their assets safely, which lowers the chance of fraud and loss. Another significant barrier to adoption is the absence of clear policies. Digital asset service provider (VASP) licensing regimes have been created in Brazil and Colombia; nevertheless, regional legislation about taxes, cross-border transactions and consumer safeguards is still dispersed. Building trust and promoting growth in Latin American markets can be achieved by taking inspiration from more developed crypto laws and regulations, such as what we see in the Canadian market. For instance, early cooperation between cryptocurrency companies and the CNBV has influenced the development of fintech laws in Mexico. Early regulatory engagement by businesses lowers compliance risk and contributes to developing frameworks that foster sustained industry growth. Openness and collaboration between companies and authorities are paramount for successful development. There are practical obstacles as well. Currency conversion is expensive and difficult in many places, restricting access to money and trade. The average remittance cost from the United States, vital for many Latin American households, stands at 6.4%, and there are plans to raise it. Crypto infrastructure can lower costs and streamline payments across borders. Examples of this include crypto ATMs and adaptable, API-friendly systems. For example, areas on the Pacific coast of Costa Rica have embraced "crypto tourism" in which companies take digital assets directly, solving how foreign visitors pay local, frequently unbanked merchants. I recently had the honor of presenting at the British Virgin Islands 2025 Conference about the need for accessible banking alternatives and the relationship between cryptocurrency and tourism. These discussions demonstrated how cross-jurisdictional cooperation may hasten adoption and create an infrastructure that serves varied communities. Ambitious administration, easily available knowledge and adaptable, compatible technology will determine the future of digital assets in Latin America. Without these changes, this region risks re-creating historical disparities. By providing increased financial autonomy and possibilities, cryptocurrency has a chance to strengthen underrepresented groups, particularly minorities. With unbanked rates of over 50% and 43% in nations like Mexico and Peru, a sizable section of people in Latin America are still unbanked. Opportunities for wealth and monetary independence are hampered by these underprivileged populations' restricted access to conventional financial services; these groups are frequently low-income, rural or ethnic. To close this gap in financial inclusion, cryptocurrency and blockchain systems present a viable substitute by offering safe, affordable ways to transfer funds without requiring a bank account. The advancement of digital asset adoption in Latin America has begun. The real question is, can we design its infrastructure to be fully inclusive of everyone it serves? |
|
|
Crypto's Most Influential Event returns in 2026.
Dealmaking. Networking. Big moves. Consensus 2026 is where the industry's top players connect, innovate, and build what's next.
Register early to lock down our best deal. |
|
|
|
0 Comments