By Anurag Dixit
Decentralized finance (DeFi) has the potential to play a significant role in increasing cryptocurrency adoption in 2023. DeFi refers to using blockchain technology to create a decentralized financial system without needing multiple intermediaries. The biggest USP for DeFi is that it allows for creating new financial products and services that are more accessible, transparent, and global than traditional options.
While cryptocurrencies are the main asset that’ll benefit from a widespread DeFi infrastructure, the applications of various DeFi protocols or products can also drive growth in multiple existing internet sectors and infrastructures. Various global online platforms like Shopify and Stripe are integrating stablecoin payments to facilitate global swifter value transfer and commerce. While Visa and Mastercard rails have established themselves well in the market, the benefits and swiftness of DeFi products and services are pretty stark too. Solana’s Saga phone, a new approach to crypto hardware and access point for the crypto ecosystem, is scheduled for release later this quarter.
A big point to note is that anyone across the globe can book their phone via Phantom (a non-custodial crypto wallet) as long as the phone is scheduled to ship in the region (to ensure delivery- booking is still functional even without delivery opening in all regions). While the phone is not scheduled for India release, the seamless availability to book it via the wallet extension shows the swiftness DeFi protocols bring to global value transfer and trade. While existing payment rails can do the same action, the internet needs its native money infrastructure backed by open-source and transparent code.
Several steps can be taken to maximize crypto adoption in 2023. One of the key ways that DeFi can drive cryptocurrency adoption is by creating new and innovative financial products. For example, DeFi platforms like Aave, Compound, and MakerDAO have created new ways for users to earn interest on their cryptocurrency holdings, which can help to increase demand for these assets. These and similar protocols continued and will continue to function swiftly in times of panic and huge volatility. We had experienced a similar situation in the recent past when a bank run was happening on multiple Centralized exchanges in the wake of FTX-Alameda insolvency issues.
One of the most important steps is to improve the user experience of DeFi platforms. This can be done by making the platforms more user-friendly and accessible, as well as by improving the security and reliability of the platforms. Some companies are working on enhancing accessibility and bringing first-time web3 or cryptocurrency users via an amalgamation of web2 and web3 technologies. While such products have received good initial traction, as with all things in finance, how far and long the products can capture more trust and usage is something essential that needs to be monitored.
The underlying technology that makes DeFi possible is the permissionless nature that blockchains provide. The open-source nature of DeFi helps provide great transparency on the protocol’s operations. But the access to these features and products is yet to hit a medium of delivery that’s efficient for the masses. While centralized offerings have got huge users in the recent cycle, transparency and trust features like independent audits and structured compliance with government norms are crucial. The industry is hopeful of getting a deeply structured policy soon as it’ll increase the overall confidence of the masses in the asset class and technology.
Another way that DeFi can drive cryptocurrency adoption is through the use of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement directly written into lines of code. They allow for the creation of new financial products and services that are more transparent, secure, and efficient than traditional options in a decent number of cases. For example, smart contracts can create decentralized lending and borrowing platforms, exchanges, and other financial products.
DeFi can also drive cryptocurrency adoption by providing greater financial inclusion. Many DeFi platforms are built to be accessible to people who do not have access to traditional financial services such as bank accounts or credit cards. This can help to increase demand for cryptocurrencies and drive adoption. Governments across the world are planning to launch their CBDCs. The public and private blockchain infrastructures highly drive this movement. This can be a massive onboarding channel for many new users to the crypto ecosystem. While the interoperability of CBDCs and cryptocurrencies is yet to be clear, the nature of handling digital assets will be very similar behavior. Over time, the utilization of DeFi protocols and the crypto ecosystem are bound to benefit from this movement.
Dire Situations :
The Canadian trucker’s access ban (in the wake of their protests last year) from the traditional financial infrastructure left them and their supporters with no option but to accept donations in cryptocurrencies, specifically BTC. While a good amount of aid was provided to them from all over the globe, the utility of those assets was limited as the inclusion of DeFi infrastructure in day apps, stores, malls, and other essential purchases are yet to happen. While attempts are in progress to integrate the traditional infrastructure with crypto-native payments, every product and service has its maturation arc.
Even Ukraine was able to raise aid of $54 million via the crypto route in March of 2022.
While the base layer of DeFi has become very robust over time, the use of case-specific applications building over time will enhance the usage of the protocols, blockchains and generate huge revenues for the cryptocurrency ecosystem as a whole.
In conclusion, DeFi has the potential to play a significant role in increasing cryptocurrency adoption in 2023. The new financial products, services, and technologies that are being developed on blockchain technology can provide new opportunities for users to earn interest on their cryptocurrency holdings, access new markets, utilize unforeseeable financial products and provide greater financial inclusion. DeFi can also drive cryptocurrency adoption by using stablecoins, decentralized exchanges, and centralized solutions with great transparency and harnessing the power of smart contracts.
A big challenge is that DeFi platforms are also subject to regulatory risk, as many governments worldwide are still figuring out how to regulate this new and rapidly evolving technology.
Another important step is to continue to educate and inform users about the benefits of DeFi and how they can access these platforms. This can also be done through various channels, such as social media, educational videos, and online tutorials. DeFi platforms can also be improved by partnering with traditional financial institutions as the core decentralization ethos is maintained.
Ethically, transparently managed, and independently audited platform solutions can be a good onboarding exercise/ experience for most new cryptocurrency users.
The author is founder, Kunji