DeFi is young and still has to mature. But what journey should it take to reach its full potential?
One answer is stick to totally ‘crypto native’ activities, such as NFTs, crypto gaming and Web 3 enterprises. The main argument for following this route is that they will need financial services and DeFi projects can capture that. However, focusing entirely on this crypto native plan could impose significant limitations on the sector’s growth. After all, the number of those holding cryptocurrencies globally is much smaller than the size of the world’s population.
The second potential route for DeFi is to forget about being crypto native and instead take a large bite out of the more traditional finance sector, such as payments, lending, e-commerce, salaries, or savings. In other words, ‘boring finance’. It may be dull, but it is more likely to boost DeFi projects. Some say it is the only path to DeFi’s full potential growth. The reasoning behind this is compelling: like all major disruptive technologies, DeFi must solve the same old problems in a better way.
The case for chasing everyday finance
Currently, DeFi projects have $39 billion in TVL and in May 2022, it enjoyed revenue of $4.4 billion. However, if it wants to achieve $4 trillion in TVL, it needs to focus on capturing the really massive opportunities. One of those is everyday finance.
For example, global e-commerce is valued at $2.27 trillion, while global markets are issuing trillions in debt. Total salary payments in the US stood at $8 trillion in 2021. When you compare these figures to the value of the NFT or video game markets, it’s easy to see which offers the greater opportunities — it’s the everyday finance.
The Internet, the car and the phone transformed society and stole market share from previous means of travel and communication. That is why it is up to DeFi to take market share from TradFi, because if it doesn’t, then it is likely to be seen as merely a niche product that never lived up to its hype.
To sum up, finance is one of those areas where the user’s needs really don’t change. People want higher yields, more liquidity, more investment opportunities, faster settlement, and generally more flexibility with their money. These are timeless and universal. DeFi can do better on every single one.