Chapter 15: DEFI is the Future, the Future has Arrived

DeFi represents the future of finance. While this remains a topic of debate, we will explain why we believe so.

At the beginning of 2020, DeFi Dapps locked a total value of $1 billion, marking an important milestone. In other words, this is the total amount of programmable money currently stored in smart contracts, which are the foundation of a brand new decentralized financial system on the internet.

Although $1 billion locked in DeFi is a small number compared to traditional financial markets, the growth has been astonishing. Here is an overall summary of the development process:

• 2018: Total locked assets increased from $50 million to $275 million, a growth of 5 times
• 2019: Total locked assets grew 2.4 times, reaching $667 million
• 2020: Total locked assets reached $1 billion (February 2020)

Before continuing with this article, let’s quickly review the features that DeFi can achieve:

Transparency: A transparent and auditable financial ecosystem.

Accessibility: People can freely access DeFi applications without worrying about differences in race, gender, belief, nationality, or geographical location.

Efficiency: Programmable money can eliminate centralized intermediaries, creating a more rational and efficient financial market.

Convenience: Money can be sent to anyone with a cryptocurrency wallet at any time and from anywhere, with lower fees and time savings.

With these features, users can: provide liquidity to the platform for asset returns without a lock-up period; take out paperless loans (with collateral) and repay at any time; and automatically execute simple trading strategies.

And the best part is that anyone can access all of the above anytime and anywhere as long as they are connected to the internet. Now, accessibility is a powerful advantage of DeFi, and we are just beginning this journey.

What is the user experience like in DeFi?

We are glad you have this question—while there are no access barriers to DeFi applications, one of the main challenges of DeFi remains the overall user experience.

That being said, many teams around the world are working hard to improve user experience. Let’s take a look at some of these teams and the issues they are trying to solve:

Wallets: Argent is creating a better user-centered crypto wallet experience, allowing free trading on Ethereum without needing ETH, local integration with platforms like Compound, or seed keys.

Multi-product participation: DeFiZap simplifies many complex steps related to DeFi products, allowing users to access multiple financial products in a single transaction, saving time and effort.

User-friendly services: Gelato Finance recently launched their "If this, then that" product service for digital currency trading. It allows users to set actions to be executed when specific conditions are met, such as "buy ETH when the price reaches $200" or "transfer to Alice on her birthday."

Insurance: Financial markets effectively facilitate risk transfer. One party hedging their position will result in another party profiting. As mentioned earlier, we can insure through Nexus Mutual or Opyn. If you are willing to accept lower returns on lending protocols like Compound in exchange for protection, you can do so now.

Liquidity aggregation: There are many decentralized exchanges (DEX) in the market, each with varying liquidity, making it difficult for users to determine which exchange is best for them. This situation is gradually becoming a thing of the past, as liquidity aggregation tools like 1inch.exchange, Paraswap, and DEX.AG help users split orders between exchanges to ensure optimal prices.

Yield optimization: Remember switching between different banks to get the best fixed deposit rates? In DeFi, you don’t have to do that—yield optimization experts like idle.finance, DeFiSaver, and iEarn will automatically allocate your digital assets to the highest-yielding places on the Ethereum blockchain.

While there is currently no "killer app" that perfectly solves the user experience issue, we believe that it is not out of reach!