DeFi: Waiting For Adoption. Part 2

Almost everyone at his point knows what “decentralized finance” is. However, generally speaking, the DeFi sector has not yet reached the mass adoption stage. In terms of attitude to it, the situation with DeFi now resembles the situation with cryptocurrencies at the very beginning of 2017.

It’s important to note the high rankings of such countries as India, Ukraine, and Thailand in Chainalisys DeFi adoption rating. These are low-income countries, so the advanced DeFi development is somewhat surprising. Although, it is likely the case of weak earnings being counterbalanced by the high education level and mass adoption of cryptocurrencies. Similarly, Vietnam has become such a champion of mass crypto adoption that it would be weird for it to fail in the area of DeFi.

To understand how the development of decentralized financial services unfolded in different regions, one has to only look at the web traffic data for the DeFi protocols within a historical context.

It makes everything pretty clear: from April 2019 to approximately June 2020, the bulk of web traffic for DeFi protocols came from North America. Later, there was an increase from the Western European side – the trend is apparent from about September 2019. Also, ever since mid-2020, we have seen climbing traffic in other regions, especially Central and South Asian countries.

It was right at that moment when the total value of cryptocurrency assets on DeFi platforms began to grow rapidly. In Asia, China has become one of the largest countries in terms of DeFi transactions. Apart from that, however, web traffic for DeFi protocols in East Asia remains low compared with the traffic from centralized cryptocurrency services.

Simply put, Asia has not yet tasted true decentralization. You might even explain it by contrasting Western individualism and rejection of dictatorship with Eastern collectivism and respect for authority.

So who is using DeFi the most? To find out, you need to look at the breakdown by transaction size of the transaction volume share for DeFi protocols versus all cryptocurrency activity.

You may notice that large transactions account for a majority of DeFi activity. It most likely demonstrates that decentralized finance technology is disproportionately prevalent among large investors when compared to cryptocurrencies in general. The numbers show that over 60% of DeFi transactions in Q2 2021 were institutional transactions worth more than $ 10M, as opposed to less than 50% for all cryptocurrencies. Professional, big and small retail transactions also accounted for a larger percentage of all crypto activity than DeFi activity over the same time period.

The figures also suggest that countries with historically the largest institutional and professional cryptocurrency markets have also become the driving force behind DeFi. Having worked extensively with cryptocurrencies and being well-versed in blockchain technology, large traders have become the greatest adherents of DeFi. In other words, DeFi targets cryptocurrency insiders, people who have been in the industry long enough and have sufficient funds to experiment with new assets and financial technologies.

Basically, it’s pretty obvious why the mass adoption differs so widely for cryptocurrencies and DeFi services. At the grassroots level, emerging markets are pushing crypto adoption. Users are turning to this asset class out of necessity to either protect their savings in the face of devaluation or make remittances.

In turn, the adoption of decentralized finance is most beneficial for experienced cryptocurrency traders and investors looking for new sources of profit on innovative platforms. Hence the greater implementation of DeFi in high-income countries. Take, for example, the fact that DeFi services are spread the widest in the United States, and 60% of transactions are larger than $ 10 million.

We have already mentioned that the most popular types of DeFi protocols are decentralized exchanges and lending platforms. But this is today. In reality, there is much more to the world of decentralized finance, including prediction markets, asset management, derivatives, insurance, banking, marketplaces, and asset tokenization.

Therefore, one obvious way for DeFi to evolve is to move away from platforms like Aave and Compound towards a whole kaleidoscope of various platforms and services. Such diversity will push the mass adoption of decentralized finance, and the growing number of users, in turn, will stimulate DeFi development.