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Current state and roadblocks for DeFi adoption in 2024.
Created Using DALL-E
In a recent article in CoinDesk, I explored a thesis on the requirements for DeFi’s growth in this new phase of the market. Despite major collapses and incidents, the DeFi space has shown remarkable resilience in the face of incredibly hostile market conditions. With renewed momentum pushing DeFi adoption, it is important to consider the key factors that could drive DeFi in this new market phase. Let’s call this DeFi v2.
In the article, I discussed three main dimensions of growth for DeFi v2:
- Developers: Building new protocols and infrastructure in the space.
- Retail Investors: Interacting with DeFi protocols via wallets and exchanges.
- Institutional Investors: Using DeFi in large investment or trading strategies.
The health of DeFi v2 depends on these three dimensions growing sustainably and in conjunction. However the three groups are in very different stages:
Let’s dive a bit deeper into the current state and roadblocks of each demographic.
Developers
- Current State: The developer ecosystem in DeFi is very strong. New ecosystems such as Celestia, Manta, and EigenLayer are bringing new energy into the ecosystem. Additionally, protocols are becoming smaller and more granular, expanding the footprint for builders in the space.
- Biggest Roadblock: A major problem in DeFi is the protocol cold start problem. Most protocols lack the capital to deploy incentives or the distribution channels to attract institutional capital. Better channels to address this problem are needed.
Retail Investors
- Current State: The DeFi retail ecosystem was decimated post-FTX. Some traction is returning with attractive yields and renewed market momentum.
- Biggest Roadblock: Distribution and user experience are by far the biggest challenges in retail adoption. Enabling access to DeFi via wallets and exchanges is essential for accelerating retail adoption in the space. Additionally, abstracting the complexities of DeFi with smoother user experiences is massively important.
Institutional Investors
- Current State: Institutional adoption in DeFi remains constrained to crypto companies. However, adoption within that demographic is certainly making a comeback.
- Biggest Roadblock: Many services such as risk management, credit, margin lending, and even insurance are desperately needed to boost institutional adoption of DeFi. Without these, institutional DeFi runs the risk of remaining a crypto-to-crypto channel. Regulation also remains a major roadblock for institutional adoption of DeFi.
I will expand on these different areas in a future article.
DeFi v2: What’s Needed for DeFi to Grow in the Next Phase of the Crypto Market was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.
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