2020 has been one of the most fantastic years for the cryptocurrency industry. This year, decentralized finance really blew up. As of December 9th this year, the Ethereum blockchain network has more than 1 million unique addresses. This increase represents more than a tenfold increase from just the 91,000 addresses at the same time last year. While these numbers are incredibly positive, experts say that it shouldn’t be taken as a sign of widespread adoption.
While the growth has been unprecedented and clearly evident, Dune’s report showed a clearer picture of what’s going on. For example, the report analyzed the total number of unique addresses that had operated on popular DeFi protocols such as Uniswap, Aave, and Compound and saw that the systems interpreted every user as a unique address. In a bid to increase their privacy and reduce tracking, most DeFi users will deploy several addresses at the same time. This means that when analyzing these numbers, they might be off by quite a bit. For decentralized finance to take off and achieve millions of users, a few things need to happen.
Speculators turned to participants
For DeFi to gain mass adoption, it must find a way to turn most of the people who know about it from simple speculators to active participants. Brian Flynn, the co-founder of Rabbithole, says that one sure way to bring people into the fold is by having a killer app revolving around speculation. Just like the way the Rabbithole app blew up during the Covid-19 lockdowns, a brilliant app can be the force needed to get people to that threshold. Once you have attracted the users, companies should start thinking about sustainable ways to get users to involve themselves in governance and maintaining the network infrastructure all around. Additionally, people need to gain a deeper understanding of the protocols that run these DeFi applications. By understanding how these protocols work, only then can you be able to refine it and get a better product.
A different kind of user
To get more users active on the DeFi landscape, you definitely need to attract different kinds of user’s altogether. As it is, most DeFi applications are tailored toward a particular demographic, which excludes a lot of other people. For instance, Patric Rawson, one of the co-founders of DAO blockchain experimentation and engineering, says that most DeFi applications on the market today are tailored toward young males who are technically savvy and out to make a profit. While this demographic is still great, there are a lot of missed opportunities with the rest of the excluded demographics. As such, it means that DeFi companies will have to rethink their entire approach to users and find ways to promptly invite other demographics to see better numbers.
Obstacles preventing mass adoption of DeFi
Reaching more users has been quite the challenge for many DeFi and crypto companies in general. That’s because these companies are facing serious challenges that need prompt solutions to move forward. For instance, several technical challenges plague this industry. First off, smart contracts haven’t been refined to a point they are foolproof. When codes in smart contracts fail or don’t work as they should, they leave the entire network exposed and ready for a hack. Furthermore, completed transactions be they fraudulent or not, cannot be reversed, leaving victims holding the bag. The deficiencies in the underlying blockchain technology need to be addressed so that there can be some sort of relief in such instances. As more users make the shift to decentralized finance, we can start seeing the hold banks have over countries diminish as more people get their financial freedom.