Decentralized finance, better known by the abbreviation DeFi, has had quite the moment in recent months. The total value locked (TVL) in DeFi projects assumed a parabolic rise from its initial value below $1 billion a year ago, going past $80 billion.
Granted, while this might be a great indicator of a promising start, these numbers are minuscule when compared to central markets. Rising levels of TVL across the DeFi landscape indicate growing interest. However, more needs to be done if DeFi is to achieve its intended purpose of becoming a vision for the future of finance. Indeed, without a large pool of investors, the entire DeFi sector will collapse,
One of the main bottlenecks limiting mass adoption is the steep learning curve it takes to use DeFi platforms, not to mention the poor user experience that makes most DeFi platforms too complex for wide adoption.
The DeFi user journey
As one of the world’s most critical and sensitive industries, the finance sector is always moving towards solutions that enable safety and convenience while enhancing workflow. DeFi offers a new way of managing finances by removing intermediaries thereby cutting costs. However, it remains to be seen whether DeFi platforms will match the convenient user journey of centralized finance CeFi.
For instance, borrowing on Compound, one of the most popular borrowing and lending protocols with over $7 billion TVL, is straightforward. The platform’s user interface (UI) features information about different token APYs, their current liquidity level as well as supply and borrow balances.
The same can be said for Aave, one of Compound’s competitors, where a user can either deposit funds to provide liquidity or as collateral for borrowing. What’s more, with every asset, Aave displays a graph of current total money borrowed as well as the lending liquidity of that asset.
However, although the whole process of using each of the platforms mentioned is straightforward, the interfaces are mostly designed for crypto-savvy users. The entire process of connecting wallets and confirming transactions can also get tedious for users who want to jump through multiple DeFi protocols as each platform features a detailed and specific process of lending, borrowing, or even exchanging tokens. This makes scalability a challenge.
Apart from a few exceptions, most DeFi platforms are built on Ethereum’s blockchain which is still undergoing multiple structural changes. Therefore congestion on Ethereum’s network often destabilizes these DeFi platforms as seen with the recent spike in transaction fees on Uniswap.
Conclusion: Bridging the gap between CeFi and DeFi
DeFi platforms have come a long way from their early days of low liquidity to current levels of platforms with high TVL values. There is also much that has been done to improve the intuitiveness of DeFi platforms. However, more needs to be done to improve scalability.
Ethereum’s bulging size is already proving to be untenable with high transaction fees that threaten the use of DeFi protocols in microfinance. If adoption is to pick up speed, DeFi protocols need to build on a blockchain network with very low gas costs.
Furthermore, instead of designing the applications for veteran crypto users, developers need to use UIs that are very easy to use even for people with zero knowledge of crypto. This is the vision that Verso is building.
Verso is bringing scale to financial products by helping CeFi, and DeFi companies launch microfinance products without barriers to adoption. Verso is already working with Avalanche to introduce microfinance into the user experience of existing fiat wallets.