DeFi's Missing Piece: The Case for Fixed Income

Decentralized finance (DeFi) has emerged as a significant force in the financial landscape, but it has yet to fully embrace a crucial component of traditional finance: fixed income. This asset class, which includes investments like bonds and savings accounts, has been largely absent from the DeFi ecosystem, despite its potential to enhance stability and facilitate institutional adoption.

In a recent interview, Brandon Goh, co-founder and CEO of Treehouse, highlighted the importance of fixed income for the long-term growth and sustainability of DeFi. Goh noted that while DeFi has made strides in developing derivatives, lending platforms, and decentralized exchanges, it lacks a standardized benchmark rate akin to the London Interbank Offered Rate (LIBOR). Without such a benchmark, scaling fixed-income products in a decentralized environment becomes challenging.

Goh suggested that the absence of fixed income in DeFi can be attributed to the lack of necessary infrastructure, particularly benchmark rates. He argued that without a foundational layer, it is difficult to establish a solid fixed-income asset class in the DeFi ecosystem. To address this issue, Goh proposed the creation of a decentralized offered rate (DOR), an on-chain benchmark designed to improve market efficiency and transparency.

Treehouse's model allows users to earn predictable returns while mitigating risks associated with yield-generating products. As the conversation turned to the potential entry of institutions into DeFi, Goh argued that large financial players are unlikely to engage in high-risk strategies but may start with stable, transparent yield opportunities such as staking. A reliable fixed-income market could serve as an entry point, helping to bridge traditional finance and crypto.

Goh predicted that DeFi will shift towards sustainable growth, moving away from unsustainable high-yield incentives. As regulatory clarity increases and infrastructure improves, fixed income may become a key pillar of the next phase of DeFi's evolution. This episode of Hashing It Out provides valuable insights into a crucial but underdeveloped area of DeFi that could shape the industry's future as it seeks mainstream adoption.