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There’s a lot of talk about DeFi (decentralized finance) these days.
If one were to believe all the hype, it would seem that DeFi is a foregone conclusion it’s not a matter of if complete decentralization will happen, but rather a matter of when.
Admittedly, it does appear that things are heading in that direction. The potential, the market need and the technology are all there.
While some infer that we could make the switch right now, that’s beyond optimistic.
It’s true that decentralization is dependent on blockchain technology, and you’d be hard-pressed to find people who will argue that blockchain doesn’t work.
Even naysayers, when pushed, will concede that the technology itself is solid and has the potential to disrupt finance as we know it.
But just because blockchain technology has proven itself doesn’t mean that DeFi is a necessary inevitability.
DeFi will almost certainly play a role in the future of finance. But I can see at least three major roadblocks that need to be overcome before DeFi has a chance of overcoming traditional payments.
Consumer buy-in and trust
Our current centralized systems have been in place for a long time. They’re accepted because they’re familiar and for the most part, they work very well.
People are resistant to change, particularly when they don’t see a clear benefit.
Even when shown the upsides, many will distrust a new way of doing things, taking refuge behind an ‘if it ain’t broke, don’t fix it’ mentality.
One of the chief arguments for DeFi is that it removes the middleman. But that doesn’t take into account that some people would rather pay a third party to perform a service.
We generally accept that like attorneys or CPAs financial professionals know more than we do about their specialty and will do a better job.
More importantly, when professionals provide a service, they also take on the accompanying risk.
Consumers will be even more hesitant to accept a new system if it also means losing protection and accepting liability.
This was effectively proven at the dawn of the credit card age. Payment card usage did not gain wide-scale acceptance until 1974, when stronger consumer protection mechanisms were put in place.
Acceptance increased once consumers knew they had a safety net if they were scammed or defrauded.
Even then, though, it still took decades for credit cards to become a dominant payment preference.
People…
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