DeFi still suffers from ease-of-use issues due to the legacy technical infrastructure, like Ethereum 1.0, upon which leading DeFi applications were built, says Josh Rogers, founder and CEO of digital investment platform Minterest.
Rogers explained that interacting with DeFi still requires a high degree of technical understanding, from knowing the various networks, creating wallets and interacting with exchanges – both centralised and decentralised – to understanding how tokenised models operate and deliver value to users.
“Competently using DeFi apps requires falling down a deep crypto rabbit hole in self-education, which acts as a barrier to entry for the potential user majority,” Minterest CEO said.
He told Coin Rivet the emerging fracturing that occurs in new networks upon which DeFi is evolving, from Solana to Algorand or Polkadot, requires even more knowledge.
“It’s because asset transfer between these networks, each with their differing token economies and technical standards, is still not elegant and seamless, and while improving requires substantial further development before the general user will change their behaviour and move to DeFi,” he explained.
However, he added he believes that, as technology evolves, security also improves and regulation settles, the barriers to entry for the more conservative institutional investors will fall away, as they have in so many new financial offerings, and we will see significant institutional adoption of DeFi.
Goldman Sachs recently predicted the Federal Reserve will enact four quarter-percentage point rate hikes in 2022. Rogers claimed the Fed has flagged interest rate hikes for some time, and incremental increases will moderate liquidity in all investment markets.
However, he also believes the Fed’s action is not a surprise and much of the expectation has already been factored in, with rapid price decreases in key crypto including BTC, coming off highs since November.
“Crypto, however, is not just an investment asset and valuations are driven by far more than macro influences like US inflation and interest rates,” he said.
“Yes, they will have a moderating impact in the short term but it’s worth noting the following when it comes to tech valuations.”
The truth is, claims Rogers, the Web 2.0 tech sector has not experienced a crash since 2000 and the reason for that is the extraordinary value creation that has occurred in the online economy over the past two decades.
“Yes, there have been times when tech company prices have been considered over-inflated, but such events were simply overtaken by the freight training of value creation in the sector,” he explained.
“A good example is the relentless continuity of new online use cases such as e-commerce, search engines, social media, dating apps and the almost incalculable ways people and companies now interact.”
Liquidity in DeFi is still strong
Rogers added that just like Web 2.0, crypto Web 3.0 will see a plethora of use cases whose value creation will steamroll through existing crypto valuations which will have a much more substantial impact than current US inflation concerns or BTC pricing.
“While crypto prices have moderated the past few months, liquidity in DeFi is still strong and liquidity growth has responded very positively to the latest US inflation numbers, given they were within expected ranges,” he said.
“At the end of the day, investors seek to maximise yield, and DeFi yield still leaves traditional options in the dust.”
Rogers said that, with overcooked equities markets, and record inflation on the rise, DeFi was starting to look attractive to institutional investors.
“Given broad DeFi adoption of stablecoins, where a token is pegged to the US dollar, institutions are able to benefit from higher yields than traditional markets without the volatility risk of Bitcoin, Ethereum or tokens associated with specific projects,” he explained.
“Additionally, there’s an emerging view that Bitcoin acts as a real hedge against inflation given the number of Bitcoins that can be circulated is fixed and the rate at which that occurs is predictable and transparent.
“Crypto regulation is slowly finding its feet with the adoption of Bitcoin, and with it is institutional investor confidence.”
Asked what’s stopping institutional investors from taking the leap into DeFi, and how DeFi can address these barriers, Rogers outlined three primary things…
“SEC KYC requirements of pooled funds ensuring users from prohibited jurisdictions are exempt, and onboarding fiat funds into crypto currencies with asset security,” he began.
“Buying and selling cryptocurrency with fiat currency is still relatively difficult despite being around for over a decade.
“The problem arises when users want to onboard or offboard from fiat money to crypto and vice versa.
“Legacy financial infrastructure is still a blocker, however Fintechs are working with traditional institutions to improve onboarding and offboarding, and this is happening at a significant pace.”
Secondly, he said most DeFi projects run on pooled funds and for large institutions. For those based in the US, a fundamental requirement is ensuring such pools are exempt from prohibited jurisdictions like North Korea and Crimea.
“DeFi is rapidly developing solutions for such issues and there are already emerging offerings designed specifically to cater to institutional frameworks like this,” he added.
Minterest is engineered to address technical issues
When talking about how Minterest services the billions in Total Value Locked (TVL) in DeFi lending projects, with the specific aim of putting user benefits at its core, Rogers said the whole protocol was engineered to address the issues outlined earlier in terms of legacy technology issues.
“It ensures the value of liquidity mining is maintained as best as possible over time and has developed a powerful incentive structure for users to actively participate in the protocol’s governance,” he continued.
“Minterest also addresses the inefficiencies of the liquidation process that occurs in older DeFi protocols by turning the conventional model on its head with a unique buyback design where it captures all fees associated with liquidation activity.”
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.