Economists at the Banque de France tested a core assumption about crypto. They asked whether Federal Reserve decisions reach the yields that stablecoin holders earn onchain. The answer in Working Paper no. 1069 is yes, but slowly and unreliably. Authors Andrea Barbon, Jean Barthélemy, and Benoît Nguyen studied deposit rates for USDC, USDT, and DAI on Aave. Their data runs from January 2021 to January 2026. Over that period, DeFi deposit rates averaged about 100 basis points above the Fed funds target. However, that average hides violent swings, including peaks above 1,000 basis points. Importantly, the study finds that Fed policy explains little of the movement.
🚨 NEW: The Central Bank of France is examining how effectively the Federal Reserve can influence interest rates in DeFi. The findings reveal a disconnect between Wall Street and crypto, with crypto lending rates sometimes moving in the opposite direction to Fed policy. https://t.co/f5797HOS6Z
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Two Episodes That Break the Pattern
The tightening cycle that began in March 2022 gives the clearest example. Over the following sixteen months, the Fed raised rates eleven times, for a total of 525 basis points. Meanwhile, Aave deposit rates fell from 2.5% in March 2022 to 0.5% by September 2022. They only climbed back to 2.5% by July 2023. From mid-2022 to the end of 2023, DeFi rates sat about 160 basis points below the policy rate. The reverse happened between September and December 2024. During those months, the Fed cut rates by 100 basis points. In contrast, DeFi deposit rates jumped 600 basis points, from 3% to 9%.
Narrow event windows tell the same story in smaller form. Around a median 50 basis point hike, DeFi deposit rates rose only about 15 basis points after one week. That equals a pass-through of roughly 0.3 to 1. Furthermore, individual events varied widely. In one hike, the USDC rate gained almost 80 basis points while Bitcoin rose 15%. In another, both the rate and Bitcoin dropped sharply.
Why Bitcoin Sits Between the Fed and Aave
The authors explain the gap with two competing forces. Aave sets deposit rates by algorithm. The rate depends on utilization, meaning the share of deposited tokens that borrowers have taken out. Many borrowers take stablecoin loans to buy Bitcoin and other volatile assets. When the Fed tightens, Bitcoin tends to fall, and these traders cut their leverage. As a result, borrowing drops, utilization falls, and deposit rates fall with it. The paper calls this the leverage channel.
The second force works the way textbooks predict. Higher Treasury and money market yields pull cash away from DeFi. As a result, deposits shrink and Aave must pay more. The researchers call this the arbitrage channel. Their model shows that the relative size of the two responses decides the direction of the rate. In the data, a policy shock worth 25 basis points on the two-year Treasury yield mattered. It cut both borrowing and supply by about 10% over four to five months. Notably, borrowing contracted faster at first, so deposit rates fell on impact. Afterward, the arbitrage channel gradually took over.
Convergence Comes Late
The paper does not claim that DeFi and traditional rates stay apart forever. Cointegration tests and error-correction models show that deposit rates move toward risk-free rates in the long run. However, the leverage channel delays that convergence considerably after a policy surprise. The delay depends on how hard Bitcoin falls and on how easily the investor base can reach traditional finance. In addition, the authors point to a shortage of large, active arbitrageurs who bridge the two systems. Without them, rate gaps persist far longer than they would in a conventional money market. Since mid-2025, the disconnect has narrowed, with a standard deviation near 75 basis points.
Why Regulators Care Now
Scale explains the timing of the research. Aave’s deposits have exceeded $50 billion since August 2025, which the paper compares to small U.S. deposit-taking banks. Total value locked across DeFi lending reached $86 billion in September 2025, more than five times its 2023 level. Meanwhile, stablecoin capitalization hit a record $290 billion. Centralized exchanges also increasingly route user balances through protocols such as Aave and Morpho to offer compliant yield. Consequently, a growing slice of dollar savings now earns a rate that the Fed influences only indirectly.
An earlier Banque de France note reached a blunt conclusion. It stated that DeFi rates “appear to be mainly determined by demand for crypto-assets.” That note tied the renewed gap above Fed rates since late 2023 to leveraged Bitcoin demand. It likely traced back to Bitcoin ETFs. The new paper adds the mechanism and the numbers behind that claim. Readers should still note the limits. The sample covers one protocol on Ethereum. Additionally, working papers do not reflect the official view of the Banque de France or the Eurosystem. Even so, the findings give stablecoin holders a practical lesson. Fed headlines alone will not predict their next yield.
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