Retail Adoption of DeFi

The point of Decentralized Finance (DeFi) is to enable free access to financial tools and economic abilities without the restrictions, fees, and hurdles imposed by traditional financial institutions. Putting this power into the hands of retail investors, rather than market manipulators and centralized exchanges, is the north star of crypto. This isn’t absurd in the financial world; Robinhood shifted the landscape of stock market TVL from 10% retail investors to 25% at its height in 2021. There are two questions to be considered. First, why is retail adoption vital for the DeFi industry? Second, how can DeFi garner Robinhood-esque adoption? We’ll dive into these questions and provide insights into how to broadcast DeFi at a global scale from our angle here at Peaze.

DeFi has been heavily focused on two metrics: technological stability and TVL. Research conducted to build secure smart contracts that power protocols is a necessity for mainstream adoption. Meanwhile, the TVL metric has been driven by deep pocket investors who have served as lucrative beta testers. What has been relatively ignored is the frequency of transactions that are flowing through these protocols. This is likely due to expensive gas fees, but L2s bring this cost down drastically thus making high-frequency transactions much more manageable.

The increase in transaction frequency is crucial for the expansion of DeFi as it provider more data to optimize the user experience of front ends. For the decentralized community, please note that data can be anonymous and is a big part of tailoring and optimizing app usability for users, not for tracking and identifying them. Referring to the Robinhood example from earlier, one key feature that led to their success was zero-fee trading and no minimums on investments. By drastically lowering the barrier to entry, Robinhood greatly advance the investing world. Investors will be much more incentivized to actively participate in the market once this standard established in TradFi meets parity in DeFi.

This leads to the second point, greater emphasis on the analysis of user flows and retention mechanisms brings a more diverse user base to the DeFi ecosystem, which can lead to more varied use cases and product offerings. DeFi is touted as the primary use case for crypto, ultimately for self-sovereignty and global accessibility. If this is the case, it is time for products to reflect their intent of catering to a worldwide market. As new products come to market, ecosystem leaders will likely maintain their status at the top. But as it becomes evident that mainstream users want more simplified products, teams will build on these protocols and spin-off solutions that will be more rudimentary but highly scalable. By attracting and diversifying a larger group of investors, the DeFi market becomes less reliant on a small group of prominent players and is less susceptible to manipulation or volatility caused by the actions of a single player. The increase in liquidity will mean more capital availability for trading and investing, which will spin the flywheel and have compounding effects.

Retail adoption can boost the overall visibility and mainstream acceptance of DeFi, encouraging more traditional financial institutions and investors to take notice and enter the space. This can lead to more investment in DeFi projects and a more robust ecosystem overall. Once the general population enters the market and awareness and knowledge of the technology improve, DeFi will gain validity in the eyes of the consumer and regulators. At the end of the day, the regulatory uncertainty and learning curve may be the biggest roadblock to grand-scale use. If that is the case, the previous points mad about evolved usability and security standards become even more critical. For regulators to properly understand and draft supportive laws, they should be able to use the products themselves.

The DeFi space is primed not only for retail adoption but also to compete head-on with traditional financial applications and companies. The infrastructure has been proven, and there has been adequate testing with early adopters. With this, we can optimize established platforms to serve crypto and non-crypto native users alike. Until now, DeFi products have been siloed to crypto-native users due to the complex nature of wallets, on-ramps, and web3 UX as a whole. Builders can utilize Peaze to enable the rest of the non-crypto native market to access their products.

Rethinking the UI/UX through simplified onboarding mechanisms and product language is critical for DeFi. A Peaze-enabled dapp allows a user who has never been exposed to DeFi to engage directly with the smart contracts through familiar means of payment. What this looks like is allowing a user to enter their card or bank account information into their Peaze-enabled account within a dapp and funding their transactions directly from this method; for example, depositing funds into a liquidity pool from their Checking Account. We allow this to happen by programmatically on-ramping and swapping into the required token and broadcasting those transactions. Rather than redirecting to an on-ramp provider, transferring to a swapping protocol, then back to the original app, this process gets abstracted under the hood. This process allows new users to familiarize themselves and use the product through comfortable language and fiat-based pricing while never leaving the app.

Education, whether hands-on or hands-off, is also critical. This could look like a step-by-step tutorial or a click-through guide that pops up for first-time users. Adding succinct descriptions of how DeFi mechanisms like yield work can add a level of confidence for new users curious about decentralized finance. A more hands-on education experience could look like Aave’s Testnet or TDAmeritrade’s ThinkorSwim app that lets users test product functionality with mock funds and explore monetary upside. Offering a mock version also enables the younger generation of eager investors to explore new financial technology and take advantage of DeFi. As product developers, it is crucial to construct each section of a user lifecycle to be as rewarding and frictionless as possible; the fewer steps a user needs to take or needs to think to use your product, the higher retention, and likelihood for them to participate more in the DeFi market.

DeFi has the potential to evolve from the Vigilante to the Main Character; all it takes is a little push in the right direction. Until this point, there has not been a significant need for an overhaul in product or UI/UX; a couple whales can take advantage of a cutting-edge protocol and allow that team to sustain off a handful of customers. That same technology is needed in the hands of millions of users needing the same tool to avoid inflation or restrictive accounts and grow their wealth without permission and barriers from corporations. This was and still is the purpose of DeFi, and the infrastructure to make this happen is now getting built. With adoption comes validity, and with validity comes informed regulation that doesn’t stagnate industry growth, which only further adds to the global push of DeFi. With the proper infrastructure in place, DeFi can become a viable alternative to traditional finance. A few changes to some code, a button or two added, and tapping into a trusted thesaurus to find a middle ground on digestible terminology for all user profiles is all it should take, right? #DeFiForAll

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