Since decentralized finance (DeFi) has grown in 2019, it’s clear that 2020 is going to be a promising year for it, but what will it take for DeFi to realize its full potential?
The decentralized finance market reached $1 billion in locked assets, marking an important milestone for finance. Users are committing funds to decentralized protocols for lending, payments, and exchange with almost triple growth over the past 12 months. It is clear that 2020 is going to be a promising year for decentralized finance, but what will it take for DeFi to emerge as a mainstream alternative to the conventional financial system?
There’s no single easy way to make it happen, but we’ve identified three key things that need to happen before DeFi can expand around the world.
Step 1: Regulatory clarity
While the world’s leading financial centers are introducing new regulation and clarification about cryptocurrency and blockchain technology, numerous jurisdictions remain hostile to crypto and blockchain in general — consider Bolivia, Saudi Arabia, and Vietnam. Those countries who seem to have crypto figured out — Switzerland, Malta, and Singapore, for example — are exceptions to the rule.
This means users around the world hesitate to use innovative financial solutions, questioning their legality. At the same time, DeFi projects spend a lot of time and money to achieve compliance and grow. When the world’s countries start collaborating on a unified vision for digital assets, the DeFi industry will thrive.
Step 2: Enhanced security and trust
Traditional banks are still considered stable and secure, at least by comparison to the mostly unexplored decentralized finance world. There are just a few too many stories of unfortunate users losing their crypto funds to hackers or being wiped out by a market crash. People are simply happier to use financial services that they trust to be secure and reliable.
That’s why we need such initiatives as Equilibrium’s Stability Fund that makes sure that the dollar-pegged stablecoin EOSDT users get their funds back in the case of extraordinary market events.
Enhanced trust and transparency in DeFi projects is key to gaining the trust of billions of users worldwide.
Step 3: A simple user experience
The word “blockchain” is rather easily associated with complexity for most people. They suddenly need to learn about wallets, public and private keys, and even programming? That’s too much for someone who just wants to send money to a family member.
But consider e-mail: we interact with it every day, yet only a few of us have any idea how it works. DeFi applications need exactly the same levels of appeal and simplicity to break through and go mainstream.
While a billion dollars locked up in DeFi is a strong start, it’s only a drop in the bucket of the world’s financial system. We need regulatory clarity, enhanced trust, and improved user experiences to make this niche financial technology go mainstream.
In early 2020, DeFi is steadily making its way to become a full-fledged alternative for traditional centralized financial services: x3 growth over the past year is a powerful claim for success.
However, in order to reach adoption on a worldwide scale, three components are crucial: regulatory support, trust, and easy experience for users. While some of them might take a while to unfold, with the dedication of the DeFi community and the key industry players, decentralized finance has all chances to find its rightful place in the daily lives of billions.