Explosive growth across the decentralized finance sector has culminated in a 50% decline in Total Value Locked. However, the industry still holds tremendous mainstream appeal for those looking to put idle crypto-assets to work. A broader interest in yield farming will significantly affect DeFi and the current earning rates, although that can be a good thing.
DeFi Needs To Keep Evolving
The initial success of decentralized finance can entirely be attributed to cryptocurrency enthusiasts. Many holders of assets like Ether and BNB have found ways to put idle assets to work. Rather than wait for prices to go up, these users engage in yield farming. Doing so rewards them with interest or additional tokens, which can be sold for monetary gain.
That said, the DeFi industry offers little to no appeal to mainstream users. Those who struggle to access existing financial services or products are the biggest benefactors of DeFi and its opportunities. Unfortunately, the current industry does not cater to the needs of those users, as there are still many entry barriers to decentralized finance today.
Solving those key challenges – lack of regulation, security, and accountability – is not easy. DeFi protocols provide disruptive potential by removing the reliance on outdated systems. However, structural hurdles, like non-compliant algorithmic stablecoins, lack of KYC and AML policies, and lack of risk controls, make it far less appealing to non-crypto enthusiasts. Even so, it is essential to tackle traditional finance, as it represents 80% of DeFi’s future potential.
Phree Co-founder and CEO Jason Dehni recently stated that “my attraction to the application of blockchain and decentralization of wealth led to the formation of Phree, shaping a new economic ecosystem that bridges the gap between traditional finance with the innovation of DeFi technology. Our goal is to broaden access to compliant financial solutions that directly solve systemic economic imbalances. “
One solution to this problem is introducing a dedicated and compliant DeFi ecosystem as a service. A project like Phree can serve financial institutions aiming to build permissionless and transparent businesses. Additionally, the ecosystem will include a regulated stablecoin, a solution the DeFi industry direly needs to gain mainstream traction.
The Impact On DeFi Rewards
One thing to consider is what would happen to the overall yields one can expect from decentralized finance. Some protocols can maintain double-digit rates for lengthy periods, albeit it often involves taking more risk. High risk and high reward go hand-in-hand in the finance industry, although DeFi takes the crown. Dealing with assets that may lose 100% of their value on a bad day is different.
If mainstream adoption of DeFi were to occur, it is plausible to assume these exorbitant yields will go out the window pretty quickly. Projects providing high yields often see their rates drop off once more liquidity pours in. With a mainstream audience, there will be trillions of dollars in potential liquidity, bringing interest rates and staking rewards down several notches.
Broader participation in decentralized finance – staking, liquidity pools, yield farming, lending, etc. – will lead to more sustainable and much lower interest rates. That is a good thing, as it makes decentralized finance look less like the “Wild West where anything is possible, but often only briefly.” Sustainability is crucial to attract and retain mainstream attention.
Building Next-Level Infrastructure
Moreover, that future DeFi growth potential will require better infrastructure. We are talking about new wallets, better ecosystems, and an enhanced user experience to make everything as frictionless as possible. It will not be an easy transition, but not an impossible one, either. One cannot expect mainstream users to learn about Metamask or other wallets that do not necessarily offer the best user experience.
CoinStats CEO Narek Gevorgyan weighs in:
“As big DeFi brands continue to expand cross-chain, we will see better and broader scalability efforts. The popularity of NFTs has definitely brought more mainstream attention to DeFi and yield-related opportunities. We at CoinStats aim to use this opportunity to introduce new infrastructure for launching DeFi projects, help users earn on their crypto, and build a unified NFT marketplace aggregator, among other things. We’re essentially doing our part in enhancing the user experience and working to onboard millions of mainstream users.”
As the infrastructure for decentralized finance increases, there will be more opportunities for users to earn yield. Ecosystems will incorporate more yield and staking opportunities to streamline access to passive income. The CoinStats team is one such example, as their Earn feature will grant users up to 20% on crypto assets in passive income.
Making these revenue streams more accessible and ensuring users need to worry less about “using the right chain and app” is the next frontier to tackle. Doing so successfully brings the crypto and DeFi industry one step closer to mainstream attention and all the potential benefits that come with it.