How Do Interest Rate Derivatives on Stablecoins Affect Their Market Demand?

Interest rate derivatives, such as those built on lending protocols, allow users to speculate on or hedge against changes in stablecoin borrowing and lending rates. This creates a more complex financial ecosystem.

High interest rates on stablecoin lending can increase demand for the stablecoin, while the ability to hedge rate volatility makes the asset more attractive to institutional investors, boosting overall market liquidity.