Why great user experience eludes DeFi?
DeFi — Where we are
Dharma Labs recently announced their acquisition by NFT Marketplace Opensea. Dharma started as a DeFi (Decentralized Finance) Lending Protocol but later pivoted to a DeFi Wallet. Dharma and Argent, both founded in 2017, are the OGs of Consumer DeFi who worked towards making DeFi more accessible. DeFi has come a long way since the launch of DAI by Maker DAO in 2017. Over $250 Billion worth of crypto assets are locked in multiple DeFi Protocols across multiple blockchain networks today. Yet, considering its potential, its adoption remains muted and limited to power users.
The total number of DeFi users in the Ethereum ecosystem is estimated at 4 million or lower. This is based on the number of unique wallet interactions. Since a user can have more than one wallet the actual number is probably lower. 4 Million pales against the total number of crypto users which stood at 220 Million in July 2021.
While crypto/web3 has seen tremendous adoption in the last few years, the reality is that the user experience in the decentralized ecosystem has still a lot of catching up to do. Probably nothing illustrates it better than the fact that the most popular and widely used browser wallet in the DeFi ecosystem has a user rating of 3.6. A great user experience on DeFi still eludes us.
The DeFi Experience
A first-time user installing a crypto wallet is required to note down a 12 or 24 words phrase that enables them access to their funds. If you lose your private key, you will not be able to recover crypto. Self-custody of assets has multiple benefits. But this UX in itself is daunting enough that even people who are on the advanced end of the spectrum of technical competence prefer hosted wallets and CeFi products as opposed to decentralized offerings.
The second UX challenge for the users is that they are expected to have an understanding of low-level primitives to use the products. You should know which blockchain network you would like to build your assets on. You need to know how to bridge assets from one chain to another. You need to know gas fees and the native token you need to have to pay those gas fees.
And once you are past that, the user should have sufficient knowledge to understand the risks and differences between different protocols. DeFiLlama currently lists close to 770 protocols that have $1M TVL (an arbitrary number chosen to illustrate the complexities).
Let’s take the case for a user who is interested in taking advantage of high yield opportunities in DeFi by making a stablecoin deposit on a Lending Protocol such as Aave.
- The user first needs to decide first which stablecoin to choose. Aave currently supports 9 stablecoins. Once the user has zeroed in on this, they need to acquire the stablecoins on their wallet.
- Aave is available on multiple blockchains such as Ethereum, Polygon, and Avalanche. A user has to decide on a network which is a function of security, the available liquidity in the protocol on that network, and gas fees.
- Post that, the user needs to find an on-ramp solution or a cross-chain bridge to move the stablecoins on the network. The user also needs to acquire the native tokens for the selected blockchain network. e.g. Eth if the user wishes to make the deposit on Ethereum.
- Then use the wallet to complete the deposit with Aave.
- It won’t stop there though as when you complete a deposit with Aave, Aave issues aTokens to your wallet which you need to add on your own.
This is probably one of the simplest use-cases in DeFi. Swapping tokens, participating in the liquidity pools, staking, etc. are much more complex. The gap exists as while the users have a specific objective in mind, the tools they have access to require them to operate at a very granular technical level.
Understanding the reasons
A large part of it can be attributed to the fact that the technology itself is still very new. Most of the DeFi protocols have emerged in the last couple of years. The initial focus on new technology is typically on developing the infrastructure and functionality as opposed to usability and delight.
A secondary reason is that when the underlying technology is changing this fast, it makes it a challenge for the UX to keep pace with it. Supporting infrastructures such as cross-chain bridges, alternate L1 chains, and L2 scaling solutions for Ethereum such as Polygon are all recent phenomena. The consumer-facing layer which is wallets in this case has the tradeoffs to support functionalities DeFi has to offer while maintaining a coherent and simple experience.
But beyond this, considering the quantum of work done and the quantum of work that remains to be done, the number of people working in crypto is still very low. The number of monthly active developers on the Ethereum ecosystem is about 7000. Contrast this with the number of developers globally for Java is more than 10 Million. The number of UX Designers working in Web3 and DeFi specifically will be far lower.
What lies ahead
The current complexities of DeFi probably explain the relatively higher mainstream adoption of CeFi platforms such as BlockFi as compared to DeFi protocols. However, this adoption is marred with opaqueness and inherits all the downsides of traditional finance.
“I don’t like how some products simplify things so much that you don’t know what is happening behind the black box while there are others that are so complex that you need to be extremely technical to use them.”
— A crypto user on CeFi & DeFi Products
Nonetheless, 2020–21 was an inflection point in the crypto ecosystem. Millions bought their first cryptocurrencies. Hundreds of developers, writers, and creators joined the movement in different capacities. The underlying technology has also reached a point where more consumer-friendly products can be developed.
To get an idea about what the next generation of Consumer DeFi Apps may look like, we can draw parallels with how document sharing evolved over time.
Decades back sitting in our dorm rooms when we wanted to share files with our group assignment partners, we would launch sftp on terminal and key in commands to do so. Slowly, over time nifty tools like Filezilla emerged that allowed you to do all the primitive actions required for file transfer using a visual interface.
Years passed, and Dropbox launched and made it as simple as dropping a file into a folder that synced it across devices and user accounts. And finally today the documents themselves moved to the cloud. We use Google Docs or Notion to create docs and share them with our collaborators in a matter of a few clicks and seconds. The user does not have to think about what underlying primitives the application is using.
We will likely see a similar evolution of DeFi as client apps will start making self custody and DeFi more accessible and simpler. There is a massive market building up. The market will pull the product it deserves.
In a great market — a market with lots of real potential customers — the market pulls the product out of the startup.
— Marc Andreessen, The only thing that matters
I’m the co-founder of Brew where our goal is to make Defi accessible for everyone and empower them to “be their own bank”.
