The Next Wave of DeFi Users: A UX Research Study

Introduction

For the last few months, we’ve been hard at work building and iterating on the alpha version of Gossamer, an Ethereum-based alternative investment platform for the financially savvy consumer. We want to make earning through decentralized finance (also known as DeFi) simple enough for the wider investor audience. We’ve started off by integrating Compound to help users easily earn 7–10% APY, but have some exciting new features in the works and plan to launch our public beta soon. In the near future we’ll be sharing more about ourselves, our founding hypotheses, and how we’ve incorporated the takeaways below into Gossamer.

Back when Gossamer was just an idea, we did a set of 21 qualitative interviews with a diverse set of casual crypto users to understand their financial habits and perception towards DeFi. We’re no strangers to the user experience problem in Ethereum — I’ve previously written and spoken at Devcon about it. In that spirit, we’ve compiled our main insights to share with the community.

Methodology

In July 2019, we conducted 21 user interviews of about 45 minutes each. We asked a variety of closed and open-ended questions about their traditional investing habits, their awareness of the Ethereum ecosystem, and their thoughts on various aspects of new decentralized finance offerings.

I: General investing habits

FinTech products (robo-advisors, Robinhood) were the most popular investment tools.

We weren’t surprised by the popularity of robo-advisors, who have indicated that tech-savvy millennials with disposable income are their target audience.

For younger participants (25 and under), crypto was their first real investment.

This cohort grew up during the financial crisis and were still in college when the cryptocurrency market started to take off. These participants felt they didn’t have enough savings to make traditional investing worthwhile pre-crypto boom, but were drawn into crypto investing for the potential of sky-high returns. A few younger participants admitted that after losing money in crypto, they took a serious look at more “responsible” investments, like robo-advisors or individual stocks.

“I only had a couple of hundred dollars in my bank account. Earning 2% [a year] wasn’t worth the hassle of opening a new account but crypto returns were crazy, so I jumped in head first.” (23, M, Marketing)

“After I lost money in crypto, I realized I should try less risky forms of investing. It was a wake-up call for me to become more responsible.” (24, M, Engineer)

II: Awareness of the Ethereum ecosystem

Research from speculating on crypto drove the little knowledge of the Ethereum ecosystem that people did have.

• Because most people were introduced to crypto as a form of speculation, Tether had significantly more name recognition than USDC and Dai. People had seen it on exchanges like Binance or mentioned in news articles.
• When discussing borrowing and lending on the blockchain, DeFi protocols like MakerDAO and Compound had little to no recognition, but Nexo and ETHLend were mentioned once each, but only for their tokens purchased as speculation — the products were never used.
• Out of the 4 people who had heard about MetaMask, only 2 had ever used it. They specifically used it to play CryptoKitties during the market boom, and had uninstalled it since.

In each interview, we walked users through an explanation of earning on the Compound protocol. We touched on key aspects like the high earning rates (7–10% on DAI), the use of stablecoins, the over-collateralization of loans and the protocol’s risk mitigation measures.

Earning on Compound is a good way to encapsulate the DeFi phenomenon, representing a lot of the strengths (cost savings, removing the middleman) and weaknesses (smart contract security, technical complexity). We’ve curated their thoughts into insights that we believe apply to the DeFi ecosystem as a whole.

III: What casual consumers liked about DeFi

Has no direct connection to the stock market

Savvier investors recognized quickly that ecosystems like Compound were not directly connected to the stock market’s performance. This opened their eyes to DeFi as a way to diversify their portfolio, especially since this group was heavy in robo-advisors, index funds and stocks. A few also called out the value of earning 7–10% interest in an economic climate where interest rates were decreasing worldwide.

Less-savvy investors also saw this as a strong positive when mentioned to them, although they weren’t able to proactively recognize it.

“Most of my investments are in the stock market, which I feel a little worried about with everyone talking about a recession coming. This could help diversify [my portfolio] without taking big risks.” (27, M, Finance)

Higher returns vs. traditional investments.

When presented with some relevant comparison points (7% as the historical average for stock market returns, ~2% for high-yield savings accounts), people were sold.

All 21 users expressed a positive response upon seeing the comparison numbers, and many were pleasantly surprised. Even with people who were savvy traditional investors, contextualizing Compound’s rates was a helpful reminder that put things in perspective.

“Wow, I can earn 3–4 times what I can with a high yield savings account!” (33, M, Entrepreneur)

“I can earn like the stock market but don’t have to worry about all the ups and downs. This is awesome.” (30, M, Marketing)

Removes the bank as the middleman

Many of our participants liked the idea of DeFi removing the banks as middlemen. However, the bigger insight was that this helped users better understand the source of their higher returns. The lightbulb moment came for users when they realized cutting out the bank’s share led to greater earnings for themselves. This simple yet powerful explanation helped some get over the “too good to be true” hurdle for Compound’s rates.

“#%@$ the banks. I read that banks made record profits in 2018. 7–10% APY is high, and cutting banks out is a bonus.” (28, F, Business Development)

“I like that the Ethereum code is removing the banks from the equation. This makes sense now — I thought it sounded sketchy at first.” (28, M, Lawyer)

Feeds into existing belief in blockchain technology as the “future”

Almost all participants who liked DeFi also cited a larger belief in the long-term potential of blockchain technology, regardless of their background. Several who had little expertise of their own were still willing to believe in DeFi and Compound as a manifestation of the technology’s promise, due to the bullishness of experts they trusted.

“I believe in this technology long-term, regardless of crypto prices and Bitcoin. It’s the future of money.” (24, M, Engineer)

“I think that blockchain is going to revolutionize a lot of different industries and a lot of smart people I follow think that as well.” (32, F, Designer)

IV: Casual consumers’ problems with DeFi

Many of the problems our participants had with using Compound were centered around security and volatility. While that’s nothing new within the broader context of cryptocurrency, there are some special nuances for DeFi that we wanted to tease out.

The lack of a centralized, accountable organization

For most participants, the thing they most valued was the security of their money. They cared less about the path to get there, whether it was centralized or decentralized technology. A few saw the trustless nature of the smart contracts to be positive to security, but for most, smart contracts created more questions than answers.

On the other hand, our participants generally trusted Coinbase, almost exclusively more so more than smart contracts or DeFi products they were learning about. They saw Coinbase as a known entity with public accountability — their friends and family all used Coinbase.

“When I think about decentralization, I worry that no one’s responsible if something happens. I like that Coinbase has a CEO and an About Us section, that if something happens there are people that would be accountable.” (30, M, Marketing)

“Do I have to send my stablecoins to an address outside of Coinbase? That’s a little scary — I trust Coinbase, they’re a known Silicon Valley company. I have no idea who’s building these more experimental products.” (32, F, Designer)

The fear of hacks

Many of our participants had a story: someone they knew that lost their funds through some exchange or wallet hack . The less technical participants tended towards conflating all of the money-loss events in the ecosystem (exchange hacks, ICO scams, smart contract hacks). The most cited example was the May 2019 Binance hack. These people struggled to assess the risk of an ecosystem like Compound getting hacked, and wanted trusted third parties’ opinions of its security.

The more technical participants were able to hone in more specifically on smart contract security — knowing that bugs happen frequently in normal development, they expressed distrust towards holding large amounts of value in smart contracts.

“I don’t think crypto technology is 100% secure. Many people in Korea believe so. I wouldn’t feel safe having a lot of money in my own exchange, let alone a service I don’t know much about.” (26, M, Grad Student)

“I don’t know a ton about smart contracts, but if the code can’t be changed easily and they’re holding a lot of money, that seems dangerous. If Binance can get hacked, anyone can get hacked.” (32, M, Engineer)

The lack of “insurance”

The number 1 question we got about security of Compound was some version of “is my money insured?” Several users proactively compared earning on Compound to a savings account, which invited this natural follow-up. There was a tone of suspicion when this question was asked, as if they were trying to figure out what the catch was.

A few who asked about insurance for Compound proactively recalled that Coinbase and Gemini had insurance, but were unable to describe what the specific details of the policies were. We did not try explaining the new trend of decentralized smart contract insurance, but it’s likely that these participants wouldn’t be thrilled about the idea of smart contracts being insured by other smart contracts.

“Is this company legally liable if you lose your money?” (28, F, Tech)

“I remember Binance got hacked recently. If my funds were lost, do I have FDIC insurance or something similar?” (29, M, Tech)

The volatility of stablecoins (particularly Dai)

After the walkthrough, a few financially savvier participants asked follow-up questions about the price stability of stablecoins. They were satisfied with the idea that USDC was guaranteed at a $1 rate, but had concerns about Dai. In particular, they were concerned about Dai’s price fluctuations and its use of a volatile cryptocurrency like Ethereum as collateral, even if the fluctuations themselves were minor.

“I’m from South America so I think about the risks of currencies changing in price. It’s worrying that Dai changes in price so often, when it’s supposed to be stable.” (33, M, Entrepreneur)

“I’ve heard of MakerDAO but I don’t know what they do, relying on Dai seems unnecessary when I can just take safer stablecoins that are guaranteed. I care more about the coin being stable than about whether it’s decentralized.” (30, M, Marketing)

To be continued…

There’s a lot here to unpack, and we can’t do it within a single conclusion. We’ve explored various reactions of a casual cryptocurrency user to DeFi, yet there’s still a lot of nuance remaining, particularly around different audience segments.

We’ll be exploring these themes deeper in our next few posts, as we take you with us on our journey building Gossamer. Stay tuned.

If you found this useful, please share, follow us on Twitter and Medium, and of course try our live alpha product at usegossamer.com. Stay tuned for the next iteration of the series, in which we break down target audience segments most ripe to be onboarded onto DeFi.

Many thanks to my co-founder Tarik Bellamine, Sara Sodine and Sarah Baker Mills for feedback on this article.