Moody’s credit rating agency downgraded the credit rating of the United States government from Aaa to Aa1, citing the rising national debt as the primary driver behind the reduction in creditworthiness.

According to the May 16 announcement from the rating agency, US lawmakers have failed to stem annual deficits or reduce spending over the years, leading to a growing national debt. The rating agency wrote:

“We do not believe that material multi-year reductions in mandatory spending and deficits will result from the current fiscal proposals under consideration. Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat.”

The credit downgrade is only one degree out of the 21-notch rating scale used by the company to assess the credit health of an entity.

An overview of the US national debt. Source: US National Debt Clock

Despite the negative short to medium-term credit outlook, Moody’s maintained a positive outlook on the long-term health of the United States, citing its robust economy and the status of the US dollar as the global reserve currency as strengths, reflecting “balanced” lending risks.

Related: Asia’s wealthy shifting from US dollar to crypto, gold, China: UBS

Investors react to Moody’s US credit revision

Moody’s announcement drew mixed reactions from investors and market participants, leaving many unconvinced by the agency’s revised outlook.

Gabor Gurbacs, CEO and founder of crypto loyalty rewards company Pointsville, cited the rating agency’s previous credit assessments during times of financial stress as unreliable, signaling that the outlook was too optimistic.

“This is the same Moody’s that gave Aaa ratings to sub-prime mortgage-backed securities that led to the 2007-2008 financial crisis,” the executive wrote in a May 17 X post.

However, macroeconomic investor Jim Bianco argued that the recent Moody’s credit outlook does not reflect a real downgrade in the perception of US government creditworthiness and characterized the announcement as a “nothing burger.”

Interest rates on the 30-year US Treasury Bond spiked to nearly 5% in May 2025, signaling reduced long-term investor confidence in US debt. Source: TradingView

US government debt surpassed $36 trillion in January 2025 and shows no signs of slowing, despite recent efforts by Elon Musk and others to reduce federal spending and curtail the national debt.

As the debt climbs and investors lose faith in US government securities, bond yields will spike, causing the debt service payments to go up, further inflating the national debt.

This creates a vicious cycle as the government will have to entice investors with ever-greater yields to incentivize them to purchase government debt.

Magazine: Elon Musk’s plan to run government on blockchain faces uphill battle

Michael James, the head of institutional business development at Douro Labs — the company that developed the Pyth high-speed blockchain oracle network — told Cointelegraph that oracle networks like Pyth are disrupting the $50 billion financial data industry that provides critical price information to exchanges, brokerages, trading firms, and other institutional entities.

In an interview at Consensus 2025, the executive said that Pyth Network’s data pull model sets it apart from traditional pricing oracles, allowing customers to pay for data on demand, reducing costs for institutions reliant on real-time market data.

Differences between pull and push models in oracle systems. Source: Pyth Network

According to the executive, the financial data industry is currently monopolized by around eight major providers that continually raise prices on clients arbitrarily. James added:

“These data vendors have no competition in traditional finance, and so they have all the pricing power in the world. There is no substitutability; whether you are a banker or hedge fund and you are trading more or less — you still have to buy that data for compliance reasons.”

The high costs of financial data stifle innovation and prohibit small to medium-sized businesses from taking part in the global financial services industry, further concentrating the sector in the hands of a few large players and preventing novel use cases from emerging.

Related: Asset tokenization expected to speed capital flows, says Chainlink’s Nazarov

Pyth experiences significant growth in 2024

The Pyth oracle network provides real-time market data and price feeds for cryptocurrencies, equities, foreign currency exchange markets (FOREX), commodities, and rates.

In December 2024, Pyth announced the launch of real-time oil pricing data on over 80 blockchain networks.

The real-time oil price feeds track data from West Texas Intermediate (WTI) and Brent Crude Oil, aggregating the data from multiple sources and clearing the path for energy derivatives instruments and energy trading to take place on blockchain rails.

A breakdown of market share between blockchain oracle providers. Source: DeFiLlama

Throughout 2024, Pyth network increased its total value secured (TVS), a metric that tracks the amount of capital secured by an oracle network, 46-fold.

According to data from DeFiLlama, Pyth currently commands roughly 11.3% of the blockchain oracle market, up from the approximately 10.8% in market share reported in September 2024.

Magazine: Ethereum is destroying the competition in the $16.1T TradFi tokenization race

Opinion by: Merlin Egalite, co-founder at Morpho Labs

Fintechs in the front, decentralized finance (DeFi) in the back: the DeFi Mullet.

Today’s fintech companies offer excellent user experiences but are constrained by traditional financial infrastructure — siloed, slow, expensive and inflexible. Meanwhile, DeFi provides lightning-fast, cost-effective, interoperable infrastructure but lacks mainstream accessibility.

The solution? Combine fintech’s distribution and user experience with DeFi’s efficient back end.

The mullet is inevitable

Fintech companies heavily rely on traditional financial (TradFi) infrastructure that is siloed, slow to deploy and run, and costly to maintain. This inefficiency limits their control over costs and product offerings and has potential infrastructure risks. Fintechs have a strong incentive to transition to building on autonomous, credibly neutral public infrastructure.

The power of DeFi is evident in stablecoins. While traditional international wire transfers cost $30–$50 and take one to five business days, stablecoin transfers cost mere cents and settle in seconds. This revolutionary improvement in financial infrastructure extends beyond payments. DeFi provides 24/7/365 infrastructure for trading, lending and borrowing with instant settlement, open access and deep liquidity, enabling better price execution and yields.

Plugging their compliance-ready front end into DeFi infrastructure, fintech companies can focus on creating exceptional user experiences. This opens up tremendous opportunities for innovation while driving more liquidity onchain, creating a positive feedback loop of embracing the DeFi Mullet.

Now is the time for mainstream adoption

Today’s DeFi ecosystem has proven its reliability for fintech integration. There are dozens of protocols that demonstrate this maturity, securely managing billions in loans through immutable, governance-minimized designs. DeFi infrastructure gives fintechs complete control over their infrastructure. This is particularly crucial after the recent Synapse bankruptcy that trapped Yotta user funds meant to be insured by the Federal Deposit Insurance Corporation.

Recent: Bitcoin DeFi will have 300M users, beating Ethereum and Solana: Exec

Institutions are also coming onchain. BlackRock has tokenized a fund via Securitize; Stripe has acquired Bridge for $1 billion to scale its stablecoin solutions; the US is creating a strategic Bitcoin (BTC) reserve; and clarity on regulation is opening the floodgates. The shift is step-by-step but tangible.

DeFi has arrived.

The next phase

For years to come, expect more products like crypto-backed loans to be released by fintech’s most advanced players, offering onchain saving accounts, onchain loans, instant international payments and more. 

This transformation will be invisible to users and powered by smart wallets and account abstraction that maintain the familiar Web2-like user experience at which fintech companies excel. Early adopters will gain significant advantages over competitors.

Yet, unlike building on traditional finance, DeFi’s open infrastructure means even latecomers can benefit from existing network effects without starting from zero.

Some skeptics argue that the involvement of fintechs and traditional institutions will erode decentralization, as protocols must comply with regulatory requirements. While this concern is understandable, the opposite is more likely.

Expecting protocols to achieve compliance across every jurisdiction worldwide is unrealistic, especially given the vast regulatory fragmentation. Instead, regulating the apps that interface with users makes far more sense rather than the underlying protocols. For this regulatory model to work, however, protocols must remain credibly neutral.

A credibly neutral mechanism adheres to four principles:

It embeds no preference for specific individuals or outcomes.

It is open-source with publicly verifiable execution.

It is simple and understandable.

It changes infrequently.

Examples like HTTP and SMTP demonstrate the power of credibly neutral protocols — they are free, open and unregulated, with only the clients subject to oversight. The same logic should apply to governance-minimized, immutable DeFi protocols.

These constraints will push DeFi builders toward creating genuinely decentralized and trustless systems.

Fintechs integrating DeFi protocols can build on top of the most neutral infrastructure and access their growing network effects.

Let the mullet grow

The DeFi mullet is more than just a meme — it’s a structural shift.

To scale, DeFi must meet users where they are: through regulated, user-friendly fintech channels. For fintechs to stay relevant, they must offer their customers the best user experience and opportunities, such as the best rates. Those who miss this opportunity risk falling into irrelevance, much like traditional retail banks losing market share to today’s fintechs.

This convergence isn’t just possible — it’s inevitable.

Opinion by: Merlin Egalite, co-founder at Morpho Labs.

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.