The key points are as follows:

* The potential of DeFi

* Why DeFi doesn’t work

* A compromise that makes “DeFi” no longer DeFi

* A tip from an ancient story

* Optimistic outlook – plenty of opportunities

Merit

Kevin recently released an investor letter detailing how bullish they are on DeFi. This is not a new view! In fact, many crypto enthusiasts share this view. They firmly believe that on-chain, smart contract, protocol-based crypto is the solution to the problems of centralized entities. This is completely feasible and admirable. Blockchain technology does have the potential to solve these problems. The principles and core principles of crypto technology do a good job of selling a vision of a better and more equal future. Individual users are able to regain control of their own financial situation and introduce greater transparency and control to the shadow system. This sounds attractive, so what's the problem?

Problems

The problem is that while the fundamentals of decentralization, crypto, and blockchain are worthwhile and admirable, at the end of the day, DeFi will have a hard time gaining mainstream adoption due to the complexity and nature of running on-chain. It’s too hard to reach compliance in its current state, and you need to make compromises to make the technology spec-friendly, and those compromises essentially transfer the state of the technology back to centralized entities. That’s a departure from the original purpose. At this point, people keep saying, “We need to make DeFi technology better and easier to use, and we’ll eventually get there in time.” Sounds good! But it’s not.

Example description

Let's use an example to illustrate this. Imagine telling your average user - grandparent, parent, friend, neighbor, or someone you know - that they are fully responsible for their funds. Complete financial sovereignty. "Your keys, your crypto." The nuances aren't going to get everyone excited, though. If they send a transaction to the wrong address, get phished or lose their keys, a loved one dies without a backup plan, or just make a mistake, their funds are gone. There's no customer service, no one to call or leave a message to reverse a transaction, no one can help you. You sent an immutable transaction. There are no do-overs on the blockchain. You're probably trying to convince people to put their funds in a system that's more complicated for them and makes their lives more difficult. Technology has been developed to simply make our lives more convenient and easier, and that's a trend that will continue. Technology shouldn't add more complexity and problems.

Do you think you can get mainstream adoption? Imagine convincing people to invest their life savings and assets into a system where they can't get any support. How can anyone help you? You can't call your wallet provider and ask them to fix the mistake you made. Because you are the one who has full responsibility for your assets. This is not a bug, it's a feature. Small niche groups will undoubtedly be interested in this type of control, but will the larger public? It's still hard to accept.

A potential compromise — but is it still DeFi?

Many crypto advocates will take this opportunity to weigh in and discuss how these issues will be resolved in time. Great! Let’s go down this hypothetical path and explore what the future it leads to might look like. Imagine that we start introducing solutions that allow users to use customer service and other methods to resolve the issues that inevitably arise. If something goes wrong, they can easily contact customer service for help. For example, “I accidentally sent money to the wrong address… I made a mistake, can you help me reverse the transaction?” or “My wallet is locked and I can’t access it. Can you help me access it?”

The most likely solution is some kind of middle ground between web2 and web3. Something that blends both worlds and allows clients and users to get the type of support they expect in the modern world. We will always need some centralized element to appeal to a wider audience, they just need this stuff. We may eventually solve a lot of these problems and make the crypto world more accessible to users, but at this point there really is a sense that we are moving away from the core principles we want to embrace and the problems we want to solve. Certain intermediary roles will still need to exist in some form. Do we really want to bet everything on something that doesn't support revocation?

The banking and financial applications we use in the future may be based on blockchain, but will it be just a new iteration of the current version? Will there be extra steps? It's like taking one step forward, then one and a half steps back. It's a regular bank with blockchain built in. Same soup, just a few more steps.

Throw cold water on

Let’s use this opportunity to explore why people would be interested in using DeFi. We can have all the smart ideas and revolutionary technology in the world, but if no one actually wants to use it, then it will all be for nothing. If you think that if you build a technology, people will use it, you are dead wrong. You need to convince people of the idea of ​​the technology and make them understand why it is important for them. The crypto and DeFi world is full of brilliant people, and it is a world built on “building a better future”, but the fact is that we are still in a speculation-driven space. The crypto world is selling hopes, dreams, and visions of a future world. DeFi sounds really beautiful and elegant in theory and on paper, but in practice what we see is speculation, corruption, greed, insider trading, and manipulation in a space that is supposed to solve these problems. It’s human nature. Cryptocurrency is really just another iteration of the financial markets that have been running for hundreds of years. However, the whole point is to sell visions and dreams to investors who hope to sell the same hope to another poor fool one day. If people don’t have the opportunity to make a lot of money, will they really be interested in cryptocurrencies? Value is important, but the only thing that can attract users into this field is strong incentives. One billion users will not enter the market for no reason.

The future is not bleak

The future is not bleak

Despite these "negative" factors, it doesn't mean there isn't hope and potential, there are still a lot of significant opportunities! There are so many hardworking, smart, driven, passionate builders and ambitious leaders working on this. There is strong synergy and support in the growing crypto world, and most importantly, there is a lot of capital flowing in to make these ideas work and succeed. But remember, at the end of the day, we are all subject to key price factors, and many people will not be interested in entering the space without a good reason.

Is DeFi the future? Maybe a future version of it. This future world includes blockchain technology, but it’s hard to see “DeFi” being the winner it was intended to be. What ends up “winning” this race may be something that looks like a rip-off of DeFi. Restrictions on using the technology and making it mainstream will essentially compromise the problems crypto is meant to solve. Why are we still building crypto? Isn’t this just regular banking with extra steps and new marketing? Why do tokens need to exist so that a few people can get very rich and ordinary people can hope to one day buy tokens from those rich people at highly inflated prices and make crypto a part of everyday life? Is our goal here to get rich based on a dream that can’t be sold? Is this normal?

It’s a beautiful mess. Why doesn’t crypto work? Why does crypto work? There are so many reasons, and they are all there. Ultimately, this won’t be a cynical take on the world, but a candid admission of the state of the game from someone who’s fallen deep into the crypto rabbit hole. He sees things for what they are, doesn’t sugarcoat them like so many other hucksters do, and he’ll tell you what you need to hear, not what you want to hear.

Again, this space is filled with incredible potential, and there is no shortage of people willing to work hard at it. It won’t be easy, and it may not turn out the way we want it to, but the future is the future. As for DeFi? We’ll have to wait and see, but it may not turn out the way we think. DeFi — at least the current version that everyone keeps selling you — is not the future.