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Why Investing in DeFi Is the Perfect Hedge Against Inflation

CryptocurrencyJan 28, 2022 01:00AM ET
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Why Investing in DeFi Is the Perfect Hedge Against Inflation

  • SuperBonds platform aims to disrupt the typically market high-fee bonds.
  • SuperBonds is built on Solana.
  • The platform allows DeFi investors to buy bonds and have a guaranteed USDC.

When the pandemic hit, supply chain problems across the globe stirred fears of inflation. Despite the widespread panic, throughout 2021, the Federal Reserve stuck by the notion that inflation was transitory and would ease as the world returned to normal and supply chains stabilized, holding off on its stimulus policies and waiting to raise interest rates.

Fast forward to 2022 and the threat of inflation is still very much existent, with the Fed’s initial predictions now viewed as missing the mark. Over the past few months, officials have acknowledged this inaccuracy, including Fed Reserve Chair Jerome Powell. When asked at a congressional hearing if his stance had changed about price increases not being persistent, Powell’s response to lawmakers was, “No, that is no longer my view.”

In November, the consumer price index (CPI), a key indicator for inflation, showed its highest levels since 1982, with a year-over-year increase of 6.8%. Last week, Statistics Canada reported that grocery prices had risen 5.7%, its biggest annual incline since 2011.

According to the agency, the price of fresh produce was attributed to “unfavorable weather conditions in growing regions, as well as supply chain disruptions”. Additionally, two years of rock-bottom lending rates have also been a major contributor to inflation.

As evidence shows, it’s clear that fiat currency is experiencing inflation across the globe. But for those looking to invest in traditional centralized finance (CeFi), there are only so many moves one can take to protect their portfolio, be it bonds or investing in commodities and real estate stocks.

Bonds are typically sought out to hedge against inflation due to their low-risk nature. They allow investors to loan companies who need cash flow to then use the cash towards funding their operations. Although bonds remain a proven way to hedge against inflation, returning on average 5% annually, they often come with expensive brokerage fees.

One platform that plans to disrupt the typically high-fee bonds market is SuperBonds, the very first DeFi bond market. SuperBonds is built on Solana, a blockchain that operates without the traditionally high fees. The platform allows DeFi investors to buy bonds and have a guaranteed return in $USDC.

Users have the financial freedom to store their investment in whichever wallet they want through the ability to self-custody it in any wallet of their choosing. SuperBonds circumvents the high transaction costs by making use of the low-fee Solana network.

Additionally, many CeFi (centralized finance) products in the space today require funds to be stored within the platform in order to generate yield. However, DeFi (decentralized finance) has provided an alternative to this.

“SuperBonds tokenizes a fixed USD yield into a unique NFT that as a self-custodied financial asset can enable different kinds of collateralization opportunities within the rapidly innovative DeFi space, unlocking a new chapter in capital efficiency. Rates do not constantly change, providing greater predictability for traders & Liquidity Providers alike,” the company states in a blog post.

The pandemic brought about many fears about inflation, with many scrambling to protect their portfolios against the looming threat. As uncertainty as to when the issue will eventually subside continues, hedging against inflation is becoming more of a priority for investors now than ever. While the traditional bonds market is inherently high-fee, the emergence of DeFi provides new and exciting ways that investors can capitalize from their investments without high fees and with an additional layer of security of their investments being decentralized.

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Why Investing in DeFi Is the Perfect Hedge Against Inflation
 

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