The ‘next leg’ of DeFi users will be institutions, Blockchain Capital’s Larsen expects
Decentralized Finance (DeFi) Technology: A Slow Path to Mass Adoption
Decentralized finance technology has been around for quite some time now, but it still has not managed to attract the mainstream crowd as quickly as anticipated. Investor Santiago Santos humorously notes, “We’re a decade in and we have ten users in DeFi.” This self-deprecating joke highlights the relatively lackluster numbers and the disparity between the promised “mass adoption” of DeFi and the current reality.
According to Blockchain Capital general partner Aleks Larsen, the timing of the DeFi movement has been a little out of sync. Larsen explains that the technology was born into an environment where the infrastructure was not ready to accommodate mainstream usage. The Ethereum network, which served as the overloaded backbone of early DeFi innovations, quickly became bloated, resulting in high transaction fees.
However, Larsen emphasizes that the core of the DeFi thesis is powerful. He notes that DeFi is targeting massive markets, which is one of the most exciting aspects of cryptocurrency. Unlike new technologies that usually start with niche use cases, crypto goes straight for the juggernauts.
Larsen acknowledges that the mass adoption of DeFi may not look the way many people imagine. For example, he humorously points out that people are not daily active users of mortgages. The unique purpose of DeFi means that its statistics will never resemble the frenzied activity volume of a game, for instance. However, Larsen acknowledges that the amount of capital amassed by the DeFi system is quite impressive.
Larsen explains that the retail sector initially drove volume in DeFi. However, the unsustainable transaction fee environment hindered adoption just as broader attention turned to the nascent technology. He states that although the web3 infrastructure was not ready for DeFi at its inception, significant progress has been made. There is now high-performance, cost-effective, and secure infrastructure being developed.
Looking ahead, Larsen believes that the next leg of DeFi users will likely be institutional rather than retail. He suggests that derivatives will be the next frontier of innovation in DeFi, catering to sophisticated users of financial tools. Larsen also observes that the DeFi movement bleeds into tokenized markets, with major entities like BlackRock showing interest in entering the space.
In conclusion, while the mass adoption of DeFi has been slower than expected, there are optimistic signs on the horizon. With ongoing developments in infrastructure and the entry of institutional players, the DeFi industry is poised for growth. As Larsen aptly puts it, “the major potential user here remains crypto degens and DAO treasuries, and perhaps forward-looking neobanks.” The future of DeFi is exciting, and its impact on the internet economy is expected to be substantial.
Sources:
– Blockworks: Decentralized Finance (DeFi)
– Spotify: Empire podcast
– Apple: Empire podcast
