Is there method to the madness? Donald Trump and his acolytes would have you believe so.
The US president is standing firm among all the market chaos.
Just this weekend, after US stock markets suffered their sharpest falls since the onset of the pandemic, Trump reposted a video on his social media platform Truth Social. This was its title: “Trump is purposefully CRASHING the market.”
Tariffs latest: ‘BE COOL’, Trump says as trade war escalates
The video claimed the president was engineering a flight to US government bonds, also known as treasuries – a safe haven in turbulent times. The video suggested Trump was deliberately throwing the stock market into chaos so investors would take their money out and buy bonds instead.
Why? Because demand for treasuries pushes up the price of the bonds, and that, in turn, lowers the yield on those bonds.
The yield is the interest rate on the debt, so a lower yield pushes down government borrowing costs. That would provide some relief for a government that has $9.2trn of government debt to refinance this year. Consumers also stand to benefit as the US Federal Reserve, the US central bank, would likely follow suit, feeling the pressure to cut interest rates.
A trader works on the floor at the New York Stock Exchange. Pic: Reuters
Trump and his treasury secretary, Scott Bessent, have made it a key policy priority to lower yields. For a while, it looked like the plan was working. As stock markets tumbled in response to Trump’s tariffs agenda, investors ploughed their money into bonds instead.
However, Trump may have spoken too soon. On Monday, the markets had a change of heart and rapidly started selling government bonds. Thirty-year treasury yields hit 4.92% on Wednesday, their biggest three-day jump since 1982. That means government borrowing costs are rising – and not just in the US. The sell-off has spiralled to government bonds worldwide.
Rachel Reeves will be watching anxiously. Yields on Britain’s 30-year government bonds, also known as gilts, hit their highest level since May 1998. They registered a 27 basis point jump to 5.642% today – that’s on track to be the largest one-day move since the aftermath of former prime minister Liz Truss’ “mini-budget” in October 2022.
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‘These countries are dying to make a deal’
This is a big deal. It is the sharpest sell-off in the US bond market since the pandemic. Back then, investors also rushed into bonds before dumping them and the motivations, on one level, are similar.
In 2020, investors sold bonds because they had to cover losses elsewhere in their portfolios. When markets fall, as they have done over the past few days, lenders can demand that an investor who has borrowed money stump up more cash against the value of their loan because the collateral against those loans has fallen in value. This is known as a “margin call”. Government bonds are easy to sell as investors “dash for cash”.
There are signs that this may be happening again and central banks, which had to step in last time, are alert.
The Bank of England warned today of the growing risks to financial stability. “A sharp increase in government bond yields could crystallise relatively quickly,” it said.
There are other forces weighing on government bonds. With policy uncertainty unfolding in the US, investors could also be signalling that US debt isn’t the safe haven it once was. That loss of confidence also seems to have hurt the dollar, one of the world’s safest places to park your money. It’s had a turbulent journey but is down 1.15% against a basket of safe haven currencies since Trump announced widespread tariffs on 2 April.
Some are even wondering if China could be behind some of this, dumping US government debt as a revenge tactic to hurt a president who has explicitly said he wants bond yields to come down. The country holds $761bn of US government bonds, second only to Japan. If this is the case, then the US-China trade war could rapidly be evolving into a financial war.
Opinion by: Sergej Kunz, co-founder of 1inch
Institutional players have been closely watching decentralized finance’s growth. Creating secure and compliant DeFi platforms is the only solution to build trust and attract more institutions.
Clear waters attract big ships
Over the past four years, institutional DeFi adoption has gone from 10% of hedge funds to 47%, and is projected to rise to 65% in 2025. Goldman Sachs is reaching their arms to DeFi for bond issuance and yield farming.
Early adopters are already positioning themselves in onchain finance, including Visa, which has processed over $1 billion in crypto transactions since 2021 and is now testing cross-border payments. In the next two years, institutional adoption will speed up. A compliant regulatory framework that maintains DeFi’s core benefits is necessary for institutional adoption to engage confidently.
DeFi’s institutional trilemma
It is no secret that many DeFi security exploits happen every year. The recent Bybit hack reported a $1.4 billion loss. The breach occurred through a transfer process that was vulnerable to attack. Attacks like these raise concerns about multisignature wallets and blind signing. This happens when users approve transactions without full details, rendering blind signing a significant risk. This case calls for stronger security measures and improvements in user experience.
The threats of theft due to vulnerabilities in smart contracts or mistakes by validators make institutional investors hesitate when depositing large amounts of money into institutional staking pools. Institutions are also at risk of noncompliance due to a lack of clear regulatory frameworks, creating hesitation to enter the space.
The user interface in DeFi is often designed for users with technical expertise. Institutional investors require user-friendly experiences that make DeFi staking possible without relying on third-party intermediaries.
Build it right, and they will come
Institutional interest in bringing traditional assets onchain is enormous, with the tokenized asset market estimated to reach $16 trillion by 2030. To confidently participate in DeFi, institutions need verifiable counterparties that are compliant with regulatory requirements. The entry of traditional institutional players into DeFi has led some privacy advocates to point out that it can counter the essence of decentralization, which forms the bedrock of the ecosystem.
Recent: Securitize to bring BUIDL tokenized fund to DeFi with RedStone price feeds
Institutions must be able to trust DeFi platforms to maintain compliance standards while providing a safe and seamless user interface. A balanced approach is key. DeFi’s permissionless nature can be achieved while maintaining compliance through identity profiles, allowing secure transactions. Similarly, transaction screening tools facilitate real-time monitoring and risk assessment.
Blockchain analytics tools help institutions to maintain compliance with Anti-Money Laundering regulations and prevent interaction with blacklisted wallets. Integrating these tools can help detect and prevent illicit activity, making DeFi safer for institutional engagement.
Intent-based architecture can improve security
The relationship between intent-based architecture and security is evident; the very design is built to reduce risks, creating a more reliable user experience. This protects the user against MEV exploits, a common issue of automated bots scanning for large profitable trades that can be exploited. Intent-based architecture also helps implement compliance frameworks. For instance, restricting order submissions to clean wallets and allowing resolvers to settle only the acceptable orders.
It’s well understood that in traditional DeFi transactions, users rely often on intermediaries like liquidity providers to execute trades or manage funds. This leads to counterparty risk, unauthorized execution and settlement failure. The intent-based architecture supports a trustless settlement that ensures users commit only when all conditions are met, reducing risk and removing blind trust from the picture.
DeFi platforms must simplify interactions and UX for institutional investors. This system bridges the gap between. Through executing offchain while ensuring security, the intent-based architecture makes DeFi safer and more efficient. However, one of the challenges to this includes integrating offchain order matching while maintaining onchain transparency.
Late adopters of DeFi will struggle to keep up
For the early adopters of DeFi, there is a competitive advantage in liquidity access and yield advantages, whereas late adopters will face more regulatory scrutiny and entry barriers. By 2026, the institutional players that have failed to adopt DeFi may struggle to keep up. This is seen in the examples of early adopters like JPMorgan and Citi’s early tokenization projects. TradFi leaders like them are already gearing up for onchain finance.
The way forward
Regulatory bodies, supervisory agencies and policy leaders must provide clear, standardized guidelines to facilitate broader institutional participation. Uniform protocols underpinning wider institutional involvement are underway. DeFi platforms must be prepared beforehand to provide all the necessary pillars of compliance and security to institutional players who want to embrace mainstream adoption. Executing this shall require combined efforts from regulators, developers and institutions.
Opinion by: Sergej Kunz, co-founder of 1inch.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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