I’m a former economist working on a crypto interest rate POV.
Can anyone help me explain what sustains the large interest rate gap between DeFi and TradFi (e.g., crypto stablecoin deposits are paying 10%+ and deposits at US banks are paying <1%)?
In particular, if you think about this like international economics (suppose TradFi and DeFi are countries), capital should flow to the country (or in this case ‘type of finance’) with the highest interest rates. Overtime, as capital flows to DeFi, rates should fall, while in TradFi, rates should rise.
In addition to what is sustaining the gap, I’m wondering, how long before the gap closes / collapses? In particular, will a US Fed CBDC cause this to happen (e.g., banks can now start to borrow a crypto currency from the Fed at 0.25% and start to offer cheap capital in DeFi)?
All ideas would be helpful. TIA!