What's new machinery worth without instructions on how to use it? Decentralized finance, better known by the abbreviation "DeFi," was designed to be the savior of the unbanked and the financially hopeless. It was meant to give the world an alternative outlet to access financial markets after they'd be let out in the cold by legacy institutions. But it appears we're still far from that vision.
As would apply to any novice seeking credibility, the name of the game for DeFi is strength in numbers. Without a large enough pool of investors, both accredited and retail, DeFi is doomed to fail. The total value locked (TVL) of U.S. dollars, in DeFi, stands at around 40 billion as of early March, after sitting at merely one billion less than a year ago—a promising start. Yet compared to central markets, $40 billion is microscopic.
For DeFi to ever really get to where it's intended, dApps developers and enthusiasts alike certainly need the average retail investor, or even bank account holder, to join the fray. Without them, DeFi will stay small and remain a trend of the early 21st century rather than becoming a vision for how finance can function in the future. The first problem is education.
Despite an abundance of news stories glorifying cryptocurrency investors for making thousands, if not millions, in the wake of the latest bull run, 84 percent of Americans either aren't interested in investing in it or don't even know what cryptocurrency is. More alarmingly, even within the confines of the crypto buyers club, CNBC reported a survey from Cardify that found only 16 percent of crypto investors fully understand it and its potential, surmising that a large chunk got into the game for the big gains.
Deeper within the DeFi community itself, it appears there is a struggle as well. CoinGecko noted in its survey of DeFi users:
"DeFi protocols have high brand awareness, but low usage - There might be an underlying issue of why people are not using these DeFi protocols. Users either are not aware of them or lack the knowledge to use them."
As a result, instead of asking constructive questions such as "What can DeFi do for me?" or "How can I join?" those who are less familiar are likely to ask "Why should I take the risk?"
A large portion of the crypto community functions like a band of merry investors and developers. And with this band comes a territory of users imbued with a sense of enlightenment and futurism, stemming from the recent success of blockchain and related products. Its success has driven its credibility, and a general feeling among many hardcore crypto enthusiasts and blockchain DeFi developers that they are building the future of finance. Yet these sentiments have become overrun with unhealthy competition.
So while the DeFi world is expanding at light speed, the literacy of its own users lags far behind, traveling at the speed of sound. Instead of promoting broader education to pique the interests of existing users and the wider the masses, the hardcore crypto world remains entangled in a bout of tribalism and isolation. Rather than collaborate on improving literacy, the community has often opted for infighting on Reddit and Twitter.
Just as much they've earned the praises of audience everywhere for their innovation, the sentiments of enlightenment appear more inward, with squabbles on social media channels about market cap, protoco, development, and comments like "s***coin" plastered all over the Twitterverse. Even within the development community, Ethereum developers, for example, frown upon developers using EOS, deeming it far too centralized for DeFi, while EOS developers sometimes regard Ethereum as holding a monopoly. Regardless of who is pointing the finger at who, the outcomes are inhibiting rather than encouraging, and it's arguably led to isolationism that prevents wider inclusion in DeFi.
The infighting-isolationism is further magnified by neglect on the UX design front. Successful companies like Uber, Wolt, Google, and Amazon have dedicated oodles of time and resources to designing platforms or apps that are user-friendly, understanding that the success of their business is contingent on it. Contrastingly, in observing hundreds of user interfaces on DeFi apps, a person with little to no experience would be lost and likely to bounce within a few seconds. In all likelihood, the developers are thinking of themselves, not the consumer. If we supposed that ecommerce businesses were to apply the same effort, brick-and-mortar stores would still be booming.
Ironically, while the collaborations have led to unique decentralized innovations that could greatly benefit millions, it is the attitudes inside the DeFi community that have led to exclusion of ordinary people from joining with high entry barriers and un-intuitive user interfaces.
These barriers of entry are compounded by problems like a lack of transparency about risks involved; far too much information and process to absorb; and/or highly unreliable annual percentage yield (APY) promises. In some instances, such as Harvest Finance, APYs for bitcoin are listed at high rates with loose interpretations of how they're paid out. Realistically, though, when fully accounting for the breakdown of staking rewards, it's clear that most of the yield is given in the platform's native token or in some other way that isn't quite as originally seemed.
Moreover, Ethereum's size is driving untenably high transactional fees for users, as the network becomes tangled in a paradoxical situation. The more adoption of DeFi there is on Ethereum, the more exclusive the network becomes, as an increase in active users drives up transactional fees.
But there is plenty of hope despite the existing hurdles.
Rather than gear their apps to veteran crypto users, developers should aim to cater to the lowest common denominator: simple retail investors with minimal crypto experience. They could also offer a UX option for veterans to use the more complex interface.
Some websites offer educational tools to teach users, who are new to the game, what crypto is all about and how most DeFi applications function. YouTube channels have also taken the liberty to create educational videos, but some still overuse jargon far beyond the ordinary person's grasp, leaving gaps in understanding of concepts. Like anything new, education must start from the ground up, not from the middle.
User interfaces should be designed for users to understand exactly what the up or downside is of any particular kind of action, and what is unfolding in the landscape, such as when staking on a liquidity pool. Liquidity providers are exposed to price risks on either side of the liquidity pair—a matter new crypto investors need to be aware of and decide if such a maneuver is suitable for their end goals.
For this vision to succeed, some attitudes must also change within the DeFi community, which means less competitive infighting and even more healthy collaboration in addition to the existing cooperation. In order to draw the interest of the masses, crypto leaders should move away more from heavy, self-serving crypto jargon and subreddit memes and address a wider audience, explaining the benefits of crypto-based investment and participation.
DeFi collectively may have a bright future, but without expansion into the non-crypto enthusiast world, it's uptick will stay short lived. Like any product that stands the test of time, its key to success was understanding the user for the long haul. The DeFi world sorely needs that and if developers and leaders cannot find ways to repackage it to sell to the mainstream, it won't make it.