DeFi isn’t dead; it just needs to address these three major issues
It’s been a difficult year for DeFi, and things aren’t likely to improve until projects prioritise security, regulation, and usability.
A handful of analysts have well documented the persistent challenges faced by decentralised finance, and the recent collapse of the Terra ecosystem reinforced the fact that something is seriously wrong with DeFi.
I think DeFi today is completely broken for 99% of the population.
The promise of a more transparent financial system has been overtaken by greed.
UST/LUNA is just the latest in a string of bad developments:
— Peter Yang (@petergyang) May 11, 2022
Let’s take a look at what experts believe DeFi needs to do to resurrect itself.
Usability has been improved
To date, the complicated interface, perplexing multi-step staking processes, and a lack of clarity surrounding the yields on various tokens have hampered the promise of open and uncensored access to a global decentralised financial system.
What do you think DeFi needs to reach mass adoption?
a) Better ease of use
b) Greater education about DeFi
c) Less exploits and rugpulls
d) Greater liquidity and on-ramps
e) Clear government regulation pic.twitter.com/dX4Qpd2Dsh
— Rugdoc.io (@RugDocIO) January 9, 2022
The user experience on most platforms falls short of what one would expect from a multimillion-dollar platform, and the layouts can be complex, with poor documentation that frustrates users.
An ever-growing list of blockchain networks with their own DeFi ecosystems can be daunting to newcomers who have never used a software wallet before, adding to the confusion.
Finally, a more effective system for educating the public about DeFi in a secure environment is required to aid mass adoption. Otherwise, you’ll be facing the same problem as the current financial system, in which only a small percentage of the population benefits.
Prioritizing security must become a top priority
Because anyone can launch a project with flashy promises only to pull the string on naive investors and leave them with a worthless token, the DeFi sector is often referred to as the wild west. Smart contract flaws can also drain the liquidity of well-intentioned projects. The February 2022 hack of the Wormhole token bridge, which resulted in the loss of 120,000 wrapped Ether (wETH) tokens, is a recent example of this.
A higher level of security and protection from malicious actors and protocol exploits will be required for more people to feel safe exploring the expanding DeFi ecosystem and for governments to stay off the backs of the industry.
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You can either self-regulate or you can be regulated
For many DeFi analysts, a third factor at the top of the list is the need for more regulatory clarity. While many crypto investors value the unregulated nature of the asset class, the majority of the general public who are not yet involved with cryptocurrencies and DeFi are likely to remain wary until the government gives the asset class its stamp of approval.
Because of the recent Terra ecosystem collapse, regulation may be one of DeFi’s first challenges to overcome. The final form of those regulations is unknown, but they will serve as a starting point for the DeFi sector’s evolution and maturation.
Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.