Adoption of the DeFI Space: How can we really drive it up?
If we look back at the quote mentioned by Steve Jobs that “Innovation is the ability to see change as an opportunity — not a threat.” then we know how big of an innovation the DeFI Space really is. Bitcoin and other digital assets created an opportunity to build a massive digital space that was never possible before and that’s why it continues to grow. Despite the growth in the value of Digital Assets, adoption seems to be a huge topic to be discussed by all the stakeholders within the space. So let us take a look at the Adoption of the DeFI Space and explore some ideas on how we can really drive it up.
DeFI and the New World for Everyone
The word “Decentralized” might not exist in the financial sector if it weren’t for an anonymous person named Satoshi Nakamoto. The Financial sector as what we know it Pre — Bitcoin was always centralized with a system that was built over centuries but provides less transparency and is inefficient at times. With the coming age of the Internet, the Financial sector aligns itself by building a digital space to enhance adoption and grow participation but it still uses a centralized system.
Then the year 2008 came around, the World was going through one of the largest financial crashes in history and the effect was felt for years to come. The 2008 Great Depression exposed a lot of problems that exist with our traditional financial system and strangely enough, most people didn’t have any other alternative to this system. This then changed when Bitcoin and its whitepaper that was released in the same year laid a framework for a New World to be materialized.
This was when the concept of “Decentralized” was made possible through the innovations of Blockchain Technology and the breakthrough of Bitcoin. Bitcoin, drafted as a peer-to-peer electronic payment system, allows its operation to be run by a decentralized network of miners who record the transaction within the Blockchain system. This Decentralized system aims to increase transparency and efficiency from the traditional financial system.
This Decentralized System which at first only gained appreciation from the Technology Sector soon would form a stark contrast to the current Centralized Financial System. Where the Centralized System adopts a very reserved information system that only encompasses its stakeholders, the Decentralized System adopts a transparent system where everybody can receive access to the information within the Network and is free to agree or disagree with any changes if necessary.
Over the years, this Decentralized Technology has continued to grow from strength to strength as more enthusiasts enter to form a worldwide community. With this growth, more innovations started to come to adapt this Decentralized technology to many traditional financial sectors and thus the term “Decentralized Finance or DeFI” came. DeFI continues to grow in popularity with more than 8 million users and still with more room for improvement as the crypto community aims to reach 1 Billion people by 2025.
The DeFI Space consists of multiple categories that make up this huge network of systems intertwined with each other. The first of this category and quite possibly the most popular one was Digital Asset Exchange which started with the emergence of Centralized Exchanges and then adopted to form its Decentralized counterpart. From there the DeFI Space continues to expand to new categories such as Marketplace, Yield Farming, and P2P Loans just to name a few. This then drives more institutions and stakeholders to dive into the DeFI Space.
Of course, it’s not all sunshine and rainbows within the DeFI Space as the community has also gone through some serious storms in 2022. The Fall of Terra, Celsius, and FTX within the space of a couple of months has seriously rocked the ecosystem at its core. The trust that is lost along the way seems hard to recover but another Bitcoin rally could provide the necessary boost for the space to recover from its winter phase.
All of this is obviously despite DeFI having one of its best-performing years in 2021 where new categories such as NFT and Marketplace were brought into the spotlight. Peer to Peer Loan was also a flourishing sector as it started to gain traction with platforms like AAVE and MakerDao continuing to show growth during the “All Time High” season providing a new perspective on the lending sector that was before majorly dominated by TradFI.
The global DeFI market size is expected to reach USD 231.19 billion by 2030, expanding at a CAGR of 46.0% with major growth coming from the Asia Pacific Market. With the current trend of Tokenization of Real real-world assets being the fastest-growing sector within the year 2023 and Stablecoin remains a powerful force in pushing this space ahead. With a Market Cap of more than $125 Trillion, the stablecoin space has continued to attract interest from major institutions such as Mastercard and Visa.
DeFI has experienced a pivotal year within 2023 and continues to show its resilience despite the shock of 2022. The year 2022 has also brought a major upgrade to the Bitcoin and Ethereum network that has improved the scalability of the DeFI Space for years to come. Now as DeFI continues to prove itself as the fastest-growing industry in the world, it needs to focus on the next major hurdle which is “Mainstream Adoption” in order to keep on progressing.
Is there a way to expand adoption?
The DeFI Space has continued to expand its exposure to new communities but it still represents a small part of the larger adoption. Most of the enthusiasts within the Digital Asset space may have heard of Ethereum and Binance but they probably will not be familiar with AAVE or MakerDao. One of the first things to drive up adoption will be to increase the education of the DeFI Space so people could familiarize and understand how to utilize the platform.
The platform should also be able to ensure that the systems are easy to grasp for the larger audience who might be first-timers within the DeFI Space. These platforms should also be able to ensure that the system in place is safe and secure so users can trust it in the long run. Another case similar to Celcius and Terra will only stop the progress the space works so hard to build and could create a setback that may never be recovered.
In ensuring the security of the DeFI Space, the platforms should also be paired with the proper regulation to make sure that the stakeholders fall in line with the right system. It will probably take a couple of years for the regulations to catch up with the continuous innovation brought to the DeFI Space but in the end, it should be able to create a system that is efficient like its TradFI counterparts while still maintaining transparency by on-chain data & statistics.
Lastly, it also needs to shift its culture and perception from a space that was driven with quick growth to a more sustainable approach. Becoming a Fast Growing Industry is a great achievement but maintaining that growth for a long period of time is much better to drive adoption. It should not only be able to provide the enthusiast with what they want but also ensure that the system will be to drive more adoption from institutions for years to come. With the ongoing momentum happening within, DeFI could be set for a great year in 2024!
We in Nagaya Technologies Pte. Ltd believe that innovations and ideas within the DeFI Space should be nurtured to take shape. That is why we decided to innovate the original idea laid out by the other digital assets before us and introduce a hybrid concept. Nagaya is the world’s first hybrid digital asset that is partially backed by Gold to protect its intrinsic value and subsidiary projects to allow its value to grow sustainably over time. For more information regarding the latest updates on Nagaya and our whitepaper, you can visit us at nagaya.io
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