DeFi mass adoption is so close, but yet so far. Here’s how we move on from confusing boutique financial product to mass adoption, according to Antoine Loth, the CEO of Valk.
In the 1990s, the internet was in its infancy and only a fraction of the world’s population had access to it. Today, crypto and blockchain technology is in a similar stage of development. While there has been a lot of excitement and speculation around the potential of these technologies, mass adoption has yet to occur.
In fact, the total value locked in DeFi (decentralized finance) protocols is only about $60 billion, which is less than 6% of the total crypto market capitalization of $1 trillion. Further, there are only 4.8 million DeFi wallets, which is a far cry from the billions of people in traditional banking systems.
Several obstacles, including confusing wallet set-ups, industry jargon, and the difficulty of tracking multiple positions, have prevented DeFi from reaching mass adoption.
However, there is reason to believe that this will change in the coming years, especially in a post-merge era for applications and DeFi. As educational resources become more widely available and user-friendly applications are developed, we believe that more and more people will begin to use DeFi protocols. When this happens, the industry will reach a tipping point where mass adoption becomes a reality.
To a crypto-native, setting up a wallet may not seem like a big deal. However, for someone who is new to the space, it can be a daunting task. The long hexadecimal addresses, “gas fees,” and other confusing terminology can be enough to turn someone away before they’ve even started. While tools like MetaMask have made it easier to create and manage wallets, there is still a need for user-friendly applications that can let new users handle multiple accounts and positions at ease.
In addition to the challenges around wallets, another major obstacle preventing DeFi adoption is the industry’s use of jargon. For example, terms like “yield farming,” “liquidity pools,” and “decentralized exchanges” (DEXs) can be confusing for those who are not familiar with the space.
This confusion is compounded by the fact that there is often more than one meaning for each term. For example, “yield farming” can refer to providing liquidity to a DEX, staking assets in a lending protocol, or a variety of other things.
Moreover, actually executing on DeFi protocols can be difficult. There are a lot of different protocols to choose from, each with its own set of rules and procedures. For example, lending on Aave/Compound, staking on Lido Finance, or providing liquidity on Uniswap or Curve all require different actions. Even after understanding what these actions do, it can be hard to keep track of multiple positions.
People often describe two different types of traders in the stock market: retail and institutional. Retail traders are individuals who trade for themselves, while institutional traders are organizations that generally trade on behalf of others.
In the traditional financial system, there is a clear divide between these two groups. For example, individual investors have less capital than institutional investors, which gives the latter a major advantage. In addition, institutional investors have access to better information and research, as well as more sophisticated trading tools. As a result, it is often very difficult for retail traders to compete with institutional investors.
In DeFi, however, both groups suffer from a lack of tooling. Even leading institutions would commonly use tools like Excel, or other tools that only report static positions, rather than historical performance. This is a major problem because it makes it very difficult to track and monitor portfolios.
One way to overcome these obstacles is through education. When people are given the opportunity to learn about DeFi in a way that is simple and easy to understand, they are more likely to be interested in using it. Educational resources that break down industry jargon and provide clear explanations of how DeFi works will go a long way in helping people gain a better understanding of the space.
For instance, most people understand what a “savings account interest rate” is. However, when you start talking about yield farming, the average person is quickly lost. But if you explain that yield farming is simply a way to earn interest on your crypto assets, then people are more likely to be interested in using it.
DeFi mass adoption: Accessible DeFi
In addition to education, user-friendly applications are also needed to make DeFi more accessible. There are a lot of different protocols and wallets out there, which can be overwhelming for someone who is new to the space. Developing applications that can help users manage multiple accounts and positions in a single place will go a long way in making DeFi more user-friendly.
For example, our goal at Valk is to make DeFi more accessible for everyone by providing the tools and educational resources needed to overcome the current obstacles preventing mass adoption. There is an opportunity to take what works from TradFi and make them accessible to DeFi traders, such as better tracking of their portfolios, accurate profit and loss calculations, and this across the variety of protocols they are invested in from liquidity pools to lending and borrowing, and this is what we accomplished with Merlin. Most portfolio trackers on the market stay on the surface of executed trades and transactions, leaving DeFi traders to resort to excel spreadsheets to track the full extent of their investments and profits in $USD value over time.
When everyone in DeFi is equipped with high-performing tools as well as educational resources, the industry will reach a tipping point where mass adoption becomes a reality.
After the dial-up era of the internet, we saw a major shift to broadband. This allowed for much higher speeds and increased access to internet-based services. In a similar way, we believe that the development of user-friendly applications and educational resources will lead to a mass adoption of DeFi protocols.
When this happens, we will see a major expansion in the use of DeFi applications. We will also see an increase in the number of people who are able to take advantage of the benefits of crypto assets.
Some of the most promising applications in this area are those that provide users with more advanced analytics and insights. It is just as important for DeFi as it is in the traditional finance field for users to be able to better understand the full extent of their positions, strategies, and profits and losses.
Better tooling has important implications for accounting, tax reporting, and strategy development. As users gain a better understanding of their positions, we believe that more and more people will begin to use DeFi protocols. This increased adoption will lead to a more inclusive financial system that provides everyone with access to the best tools and information.
About the author
Antoine Loth is the CEO of Valk. He has over ten years of experience in private equity and investment banking. Valk is an ecosystem of powerful decentralized tools for smart trading in DeFi, such as Merlin, a smart DeFi portfolio tracker. Antoine was featured in Fortune 40 under 40, for his work on digital trading solutions for private markets achieving $4 billion in assets and deals managed. He holds a BSC in International Management at Warwick and a Masters degree at ESCP business school in London.