Heightened global trade tensions and the potential rise of protectionist tariffs could send unwelcome ripples through the crypto market, warns Vlad Kamyshov, CEO of EVAA Protocol.
As nations grapple with new import taxes, the downstream effects on digital finance could be significant. Increased consumer prices driven by tariffs often fuel inflation, potentially forcing central banks like the U.S. Federal Reserve to reconsider their monetary policy.
“Import taxes tend to raise consumer prices, feeding inflationary pressure,” Kamyshov noted. He anticipates that the Fed might respond by hiking interest rates or delaying previously expected cuts to combat this.
This macroeconomic shift poses challenges for digital assets. The Federal Reserve itself holds differing views, with some officials advocating for steady rates while others see rising inflation expectations potentially requiring tighter policy.
Kamyshov highlights the direct impact on crypto and DeFi: “Higher rates and a stronger dollar typically reduce liquidity, making it more expensive to access capital.” He explains that riskier assets, including cryptocurrencies and DeFi tokens, often experience outflows in such environments as investors seek safer investments like bonds or gold.
Even stablecoins, crucial components of the DeFi ecosystem, aren’t insulated. A strengthening U.S. dollar (reflected in a rising DXY index) puts indirect pressure on USD-pegged stablecoins such as USDC, USDT, and DAI. “For international users, a stronger dollar makes on-chain dollars more expensive to acquire and hold,” Kamyshov points out.
This tightening can cascade through DeFi platforms. Reduced accessibility and attractiveness of these core digital assets could lead to decreased activity and lower Total Value Locked (TVL) on protocols like Uniswap, Aave, and Compound.
Furthermore, diminished stablecoin inflows can result in thinner market liquidity, causing wider bid-ask spreads and less efficient trading conditions across the blockchain ecosystem.
However, amidst these economic pressures, Kamyshov sees a potential counter-trend. Growing state intervention in traditional finance might enhance the appeal of decentralized finance as a shield against centralized control.
He suggests that crypto innovations focused on reducing reliance on the dollar, improving capital efficiency, or offering alternative stablecoin models could find fertile ground for growth.
Still, a critical uncertainty remains. “The big question is whether DeFi protocols can adapt quickly enough to a macro environment defined by inflation, protectionism, and regulatory unpredictability,” Kamyshov cautions.