Crypto exchange giant, Coinbase has published a report explaining why DeFi interest rates remained high through March, amid the COVID-19 crash.

When the crypto market crashed last month as a result of the COVID-19 pandemic, the DeFi market struggled to cope, and interest rates went up. The DeFi market is a platform where lenders accept crypto as collateral for loans.

In a recent blog post published by Coinbase, it explained that the DeFi interest rates went up because crypto is far more volatile than cash, and riskier than other forms of capital. Therefore, crypto lenders demand much higher interest rates from borrowers. Together with a global financial crisis like what the market recently witnessed, the rates could even get higher.

Coinbase also attributed the interest rate hike partly to the increased demand for stablecoins. These stablecoins are easily and quickly traded for other cryptocurrency, and it is perfect when attempting to profit off a last-second trade. Therefore, amid the market crash, stablecoins were traded for a premium, and hence more of them were issued to meet demand.

As the events unfold, traders rushed to lending markets to borrow stablecoins. However, according to Coinbase, these borrowers were unlucky, as popular lending desks like Compound, Dharma and Dy/Dx, are niche, and come with their own smart contract risks. Since DeFi platforms are a collection of smart contracts and potentially vulnerable to exploits, their higher risk demands a higher interest rate.

Coinbase however expects interest rates to ultimately compress over time as the growth of crypto adoption continues to increase. It said more lending desks will start accepting crypto as collateral, adoption rate of stablecoins will grow, whereas crypto to fiat bridges will be more efficient. Hence, it believes DeFi will become more mainstream and have better protections against smart contract risk.