Making Sense Of DeFi’s Complexity: An Opinion
Decentralized finance (DeFi) made quite a splash into the blockchain ecosystem over the past few years, breathing fresh momentum into the movement to bring financial services use cases on-chain in a decentralized format. The exciting opportunities and accompanying returns have swelled interest in the space, helping DeFi protocols amass total value locked (TVL) of over $230 billion after surging from just a few hundred thousand dollars locked in late 2018.
When talking about DeFi protocols, platforms take multiple avenues to replicate financial services on-chain. They can broadly be broken down into segments, including lending, borrowing, staking, yield farming, liquidity pooling, stablecoins, derivatives, decentralized autonomous organizations (DAOs), marketplaces, prediction markets, and even insurance.
Since the Bitcoin whitepaper first made the rounds, one of the underlying ideas behind cryptocurrency was helping bank the unbanked and underbanked, creating a more inclusive financial system that eliminated barriers preventing more widespread participation. Still, the DeFi user experience is fragmented as a relatively young ecosystem, making navigation difficult, especially if its ultimate goal is greater financial inclusion.
Between locking and unlocking funds, the wallets needed to access the ecosystem, gas fees, and generally analyzing the opportunities available, there are many layers to any DeFi activity, many of which require familiarity with the system’s mechanics. These complications are at odds with inclusivity, discouraging potential users. Fortunately, like all things blockchain, the answers come courtesy of the community’s latest initiatives.
What we are going to learn?
Breaking Down DeFi’s Intricacies Through Aggregators
One of the primary criticisms of DeFi is accessibility, and to an extent, this is exacerbated by dozens of disconnected protocols providing related services. Researching the staking and lending opportunities available from each protocol individually makes it difficult to compare rates (APYs) across the whole range of possible destinations. Aggregators fill this void, consolidating the wide DeFi universe within a single interface to help users compare and contrast the choices.
Making sense of the possibilities is where Zapper comes into play. Through this useful DeFi aggregator, which brings together DeFi plays from 244 connected platforms, users can meaningfully analyze different assets by filtering by token or protocol while accessing figures for liquidity, return on investment, and rewards to improve decision-making. Once an opportunity is selected, users can build a DeFi position in one click. Besides collecting farming opportunities, the aggregator also supports crypto-to-crypto exchange and liquidity pooling. Additionally, a valuable portfolio relbancing which can shift a users capital between pools to minimize risks.
Moving Value Through The Ecosystem
Just like wallets play a prominent role in storing and transferring cryptocurrency, they also serve as the nucleus for the DeFi ecosystem. Because of the need to interact with protocols often through smart contracts, wallet ease of use is paramount for extending DeFi’s reach. Among the choices available, MetaMask stands out as one of the most trusted wallets in the ecosystem, helping users access the more than 3,700 dApps currently running atop Ethereum. With over 21 million monthly active users and counting, MetaMask’s Ethereum-compatible wallet streamlines access to the DeFi environment.
Through the intuitive wallet, which is downloadable for Android and iOS devices and select internet browsers, users can rapidly buy, send, and swap cryptocurrencies from the main interface. In terms of DeFi functionality, users can browse compatible DeFi dApps through the wallet and simply connect the wallet to the protocol to participate in the DeFi opportunities. The wallet’s mobile applications mean that users can track and monitor DeFi investments without being in front of a computer around the clock, adding to its overall flexibility and functionality.
Adding Asset Management To The Equation
Just like financial professionals guide clients through the twists and turns of traditional financial markets, helping them assemble portfolios and readjust when conditions change, similar services are also making their way to blockchain. Among them is HyperDEX, an asset management platform designed to help users effortlessly enter the DeFi universe through greater automation.
The platform’s users can select from multiple HyperDEX products, known as Cubes, which act similar to liquidity pools. The three cube options are a Fixed Income cube based on staking, Algorithm Trading that employs a statistical arbitrage method, and a prediction markets cube called “Race Trading.” Effectively, this combination of strategies and staking help users capitalize on DeFi opportunities passively, all without any prior knowledge of DeFi’s inner-workings. Together, these attributes break down the walls preventing more widespread participation in Defi, making the ecosystem more approachable.
The Bottom Line
While it still might feel like it requires an advanced degree to manuever through the different DeFi platforms, services, and products, the solutions winning the race right now are those that bring the hurdles for ordinary users. With the true potential of DeFi solutions still not entirely understand given the early stage of development, the most important ongoing step for the industry revolves around accessibility, helping the ecosystem inch closer to materializing blockchain’s ambition of greater financial inclusion.