The Biggest Issue With DeFi
Before I start, no this is not going to be an article about all the ‘hacks’ and how DeFi is still in its early stage and has its flaws. I am talking about the one core issue that everybody seems to be overlooking.
What is DeFi?
I should probably preface with what is DeFi? DeFi stands for Decentralized Finance and refers to a collection of Decentralized Applications (DApps) and protocols that are focused on, well you guessed it, finance. It allows us to do things that we might not have even thought about before and because it is open source and rather developer-focused, it allows anyone with the right mindset and motivation to easily build on top of these blocks creating new possibilities. But enough about what it is, let’s talk about what is missing?
Adoption
Yes, adoption. That is the biggest issue with DeFi today, but why? Sure, there are plenty of issues that we have to iron out to drive mass adoption like gas prices (which ETH 2.0 will hopefully solve), protocol security, price volatility and all the ‘hacks’ (I honestly prefer exploit, but I guess hacks drive more views), but there is one thing that people totally forgot about or just seem to neglect, and that is accessibility.
I know companies and developers are constantly working on developing apps, great UI for their DApps and finding more ways to improve the experience for existing users, but have we forgotten about the other 99% of the world?
When there is an economic crisis, everyone says “crypto solves that”, or maybe you want to find a cheap way to send money back home to your family and you hear people say “use cryptocurrencies”. Well let me ask you a question, how do I even get in to crypto? Let us take a step back and focus on global remittance for a moment. About 80% of global remittance are actually sent to low and middle-income countries (LMIC). If you plug that in to the US$ 689 billion sent around the world in 2018, that is equal to roughly US$ 551 billion just to LMICs. The average amount that they send home every month is roughly US$ 200–300 so paying high fees aren’t an option.
So let’s compare purchasing and sending crypto with a service like Western Union, one of the most used remittance service. If you purchase crypto with a credit/debit card, you pay a minimum of $10 + a marked up rate + 3% card fee. Western Union charges $20 + a marked up rate, so on the surface, it seems almost the same, but more importantly, how does the recipient convert crypto back to cash? That brings us back to the issue of accessibility. Now you might argue that we can use P2P platforms like Binance, but not every country is listed there. Same goes for purchasing crypto with your card, not every country is eligible to purchase regardless if they are legally allowed to or not. But like I mentioned, the biggest issue is how to go from crypto to cash?
Crypto ⇄ Cash
To be fair, there has been many efforts to bridge the gap between crypto and cash. More companies are integrating FIAT deposits for stablecoins without any fees so that is a huge step. However, these are still limited to countries in the EU or USA. Services like Dharma allow you to go from crypto ⇄ cash without fees, but they still have limits and this two-way street of crypto to FIAT is only available if you live in the USA. So I guess the real question is how are we going to solve this issue?
I understand that this will take time and with clearer regulations and bans lifted, it will probably make it easier for a lot of countries. However, I think that we should not neglect this issue and even in the current state, I think it is possible to overcome this with the help of stablecoins. If we can really tackle the underlying problem which is allowing people to get into crypto in a frictionless fashion, it can kick off DeFi adoption at a faster rate than any protocol or product. After all, why build a global decentralized financial system when it can’t be used by everyone?
What are your thoughts on this? I would love to hear what you all think! Feel free to DM me on Twitter and follow me right here on Medium!
