What is Decentralized Finance(DeFi)?

Part 3: Difficulties and Implications

DONGGYU LEE

 

[ What are the challenges DeFi is facing ]

1) Poor performance: Blockchains are inherently slower than centralized models. The same goes for applications running on top of the blockchain. DeFi application developers should optimize their services to account for these limitations.

2) Risk of user error: DeFi application is a system without an intermediary, so if a problem occurs, the responsibility is passed on to the user. This can be a negative aspect for many. When running a service on a blockchain, designing a service to minimize the risk of user error is a particularly difficult task.

3) Negative user experience: Currently, DeFi applications require additional effort (somewhat cumbersome) from the user. For DeFi applications to become a key element of global finance, the existing system must provide practical benefits and convenience that induce user conversion.

4) A cluttered ecosystem: Finding the best application for a particular use case can be daunting. Users must have the ability to find the best option, which is not an easy task. The key is not only building the application, but how to fit in with the user in the broader DeFi ecosystem.

[ implication ]

  Decentralized finance focuses on building financial services that are separate from the existing financial system. This will enable a more open financial system and potentially prevent censorship and discrimination around the world. This is a promising idea, but as we saw above, decentralization is not the only benefit. Therefore, finding the most suitable use case for blockchain characteristics is the key to creating useful open financial products. If DeFi succeeds, it will take over power from a large centralized organization, which will fall into the hands of the open-source community and individuals. Let’s see together whether DeFi can become mainstream and create a more efficient financial system.

Image Source: Luniverse

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