Simply put, DeFi’s destiny is further down the tech stack as supporting infrastructure for ecosystems, GameFi and other emergent Web 3.0 communities. In this maturation process, DeFi protocols will transform from applications to infrastructure and will serve broad communities far more than individual traders.
Stuck in the past
DeFi applications emerged boldly into the crypto mainstream in 2020’s famed summer DeFi wave as the newest and coolest thing in crypto. Providing liquidity, securing collateralized debt and earning interest on otherwise dormant capital benefited users immensely.
During that time, DeFi platforms targeted users directly and focused most of their business development efforts on their front ends.
Two years later, a lot of DeFi platforms are still stuck in 2020. Their efforts to attract users and capital continue to be driven by yields, NFTs and other lukewarm rewards.
It’s the same model banks use to attract new customer deposits with cash kickbacks and travel milesit’s dollars for dollars. But unlike banks, DeFi platforms have immense integration potential, and to this stage, that potential has been left largely untapped and explored.
DeFi’s truest potential to serve users lies in its ability to serve applications, and more broadly, ecosystems.
Profoundly so, it is the versatility of DeFi legos that makes them the perfect infrastructural tools to power Web 3.0 ecosystems that need trustless, on-chain financial services and deep liquidity.
In the heat of crypto’s 2021 run-up, big names and figures across the space delivered powerful prognostications regarding DeFi’s disruptive potential.
Despite falling prey to a humiliating rug-pull from Iron Finance only months earlier, billionaire investor Mark Cuban spoke out in September 2021, asserting that DeFi would inevitably disrupt the traditional commercial banking space and its clunky user experience.
Though audacious, Cuban’s comments only made a mild impact after Galaxy Investment CEO Mike Novogratz’s February 2021 declaration that leading DeFi protocols “want to take the banks and tear [them] limb from limb.”
Novogratz also announced that leading DeFi platforms would replace global banking giant JP Morgan and the entire New York Stock Exchange (NYSE).
While both saw the untapped potential in DeFi, neither TradFi native could extend his vision far enough to consider DeFi’s journey to adoption within the context of the Web 3.0 paradigm.
To imagine that DeFi platforms might gradually accrue usership and capital from traditional finance as they strengthen security and enhance user experience is to ignore the many synergies that exist right beside them within their respective on-chain environments.
Make no mistakeDeFi is not here to wiggle its way into the traditional financial landscape and carve out the tiny segment of commercial banking’s market share that fintech couldn’t quite get its hands on.
To the contrary, DeFi is a profound set of infrastructure that stands poised to underpin an alternative financial system altogetherthat is, the Web 3.0 ecosystem.
DeFi’s days of carrot-and-stick customer chasing are coming to an end. It is now time for winning DeFi platforms to begin their journeys to the base layer of the Web 3.0 tech stack.
As Web 3.0 grows, opportunities abound
Blockchain gaming’s P2E (play-to-earn) sector has taken on a life of its own over the course of the last two years, most notably with Axie Infinity players in the Philippines making a living off their in-game earnings.
As more traditional gamers begin their migration to Web 3.0 in order to monetize their accounts and achievements, a massive new sector is developing underneath themGameFi.
Unlike in traditional gaming environments, Web 3.0’s in-game economics are driven by in-game currencies, NFT collateral and other player-owned assets that have spawned truly free markets.
With those markets, so too has spawned a massive demand for sophisticated, efficient financial operations that gaming teams do not have the resources nor the expertise to support alonenot to mention the liquidity provisions necessary to sustain them.
These budding Web 3.0 gaming communities present one of the first meaningful opportunities for DeFi platforms to become backend service providers, powering GameFi with a suite of decentralized financial tools.
DeFi’s next steps
Weathering regulatory pressures, bolstering security, developing new and innovative financial products and smoothing every aspect of customer experience are sure to remain important objectives for DeFi platforms in the years ahead.
But the path to adoption is shifting.
Winning new users and capital will become a function of how effectively DeFi platforms establish strong partnerships with Web 3.0 ecosystems that need fundamental financial services to support their applications and communities.
As of today, P2E’s rapidly growing and increasingly complex GameFi sector marks a major opportunity.
When positive sentiment returns to Web 3.0 once again, business development will be the decisive factor that separates winners from losers in the next generation of DeFi.
To those who can see the big picture coming into vision, power to you. It doesn’t hurt to get a head start on the rest of the pack.