By 2025, the Federal Reserve will complete three rounds of rate cuts, with the federal funds rate falling back to the 3.5-3.75% range. Market institutions generally expect a 95% probability of holding steady in early 2026, with mid-term expectations of rate cuts in June and September, and some research institutions even discussing potential rate hike pressures in 2027. The initial purpose of this rate cut cycle was to stabilize growth, but persistent strong employment data has led the Fed to maintain a cautious stance, with officials stating they will continue to monitor real-time changes in inflation and the labor market.

In a low-interest-rate environment, the borrowing costs for institutional investors decrease significantly, leading to increased enthusiasm for allocating to crypto assets. This has opened up new possibilities for certain public chains focused on institutional applications. For example, platforms dedicated to compliant DeFi and RWA tokenization are attempting to attract traditional finance by emphasizing privacy protection and regulatory alignment.

Taking RWA as an example, rate cuts put pressure on yields from traditional assets like bonds and real estate. Tokenizing these assets offers the core appeal of potentially providing returns that surpass fixed income. Some projects are preparing to tokenize securities worth billions of euros on-chain, aiming to start user recruitment in January. Meanwhile, privacy transaction solutions are gaining popularity, utilizing zero-knowledge proofs and homomorphic encryption technologies to meet institutional investors’ needs for high yields during low-interest cycles while maintaining privacy.

From a technical perspective, new public chains compatible with the EVM ecosystem are about to launch mainnets, significantly reducing deployment costs for institutions. In an era of abundant liquidity driven by low rates, capital is always seeking new venues. Modular technical architectures combined with audited compliance are becoming competitive advantages for some platforms.

Overall, rate cuts are a double-edged sword. The decline in traditional asset yields prompts capital to seek alternatives, and on-chain RWA and privacy DeFi are well-positioned to demonstrate value within this window. However, the inflation expectations triggered by rate cuts also pose new challenges for asset allocation. In this context, blockchain applications with compliance features and risk hedging functions become even more critical.