How The Fed Rate Effects DeFi Interest Rates.
TL;DR — The Fed lowering the interest rate indirectly affects the DeFi rates, but Makers rate effects it more. Lowered interest rates are a huge problem for people looking to earn passive income, we solve this.
The Fed lowering rates hurts consumers’ potential to earn a yield on their dollars. The Outlet Mobile app allows users to earn much more than traditional markets and fixes the earning problem for some of these consumers.
The FED are the people in charge of moving the entire interest rate in America. America is one of the largest capital markets in the world. These changes to the interest rate provide network effects to other industries and countries.
The United States Federal Reserve System (FED) has lowered the interest rate once again. Lowering the interest rate comes with a ton of side effects in almost every major industry throughout America. Everyone in America is either directly or indirectly affected by this rate. The effect of lowering the interest rate varies depending on the industry you are in. A great example would be, If you are a bank, you are taking on the same risk for less of a reward, but in theory, people will be willing to take out more on their loan due to the lower borrowing rate. This example network effect can be positive, or negative to your particular business depending on the niche. However, the average consumer will be affected in a negative way no matter what.
Lowering the interest rate hurts consumers
The lowered interest rate has a net negative to consumers looking to earn more on their money, and make their money work for them. Banks make less money, and therefore take away from the interest rate they give to their customers.
Lowered bank interest rates
Banks use your money and put it to use. They use customers' funds to safely back loans of their choice. Because banks issue loans at a lower rate, your money earns a lower rate.
Different banks and banking related products have lowered the rate they pay because of this.
Lets take a look at the following example:
The Wealthfront cash account always has one of the higher interest rates on the market, and is notriously an amazing product. This past year the interest rate has decreased dramatically for consumers of the product.
Wealthfront Cash Accounts Rate Q1 2019: 2.57%
Wealthfront Cash Accounts Rate Q4 2019: 1.8%
Although Wealthfront does everything they can to give their customers as much as they can, the fed limits them due to setting the interest. This creates a massive problem for people who care about their bank's APY.
The lowered interest rate creates opportunities for people in the DeFi space to get more traditional loans and find a way to get a lower rate than decentralized lending products offer. The nature of competition in the loan space is always a race to the bottom. People want to borrow with the lowest APR, this makes higher APR solutions drop their rate in order to capture a larger share of the market.
If your traditional bank accounts interest rate is too low and you are looking for a higher-paying alternative Outlet is a great option for you.
Using Outlet To Earn a Higher Rate
Unlike traditional banking solutions on the market today Outlet is not affected by the feds jurisdiction on the United States interest rate due to Outlet using a dollar alternative, Dai. Dai is a decentralized currency that is equal to $1. $1 = 1 dai. Outlet pays roughly 100x traditional bank account rates. This rate is much more volatile than a traditional bank but, but even banks interest rates change multiple times within a year.
The average interest rate that Outlet pays is roughly 7%(currently). Outlet uses multiple tools in order to achieve this rate, and combines them all in a user experience that feels just like a traditional bank account.
You can download the Outlet mobile app in the iOS app store.
Current Requirements to start using Outlet:
- 18+ years old
- Valid US ID
- Valid US Bank account
We plan on making our product more widely available to users outside of the United States as soon as possible. If you are seeing this article we recommend signing up or reaching out to see if we opened in your country yet.
This article is just my personal opinion, and should not be taken as a fact.
