2023 should have been decentralized finance’s (DeFi) time to shine. In late 2022, FTX’s implosion led to a near bank run on centralized exchanges (CEXs), and a flight to the transparency of DeFi alternatives.
Rachel Lin is CEO of SynFutures, a decentralized derivatives trading platform. She previously worked in the global markets division at Deutsche Bank, where she specialized in derivatives, and is also a founding partner of Matrixport, one of Asia’s largest crypto neo-banks.
But DeFi wasn’t ready. It fumbled the baton pass. Immature infrastructure and overly complex UI/UX meant DeFi wasn’t well-positioned to make the most of centralized finance’s (CeFi) “black swan” event.
Yet, there’s no reason to assume this was DeFi’s one and only shot. There is still plenty of hope for DeFi. In fact, major factors indicate that 2024 could be the year we see a real breakthrough.
DeFi’s lackluster 2023
DeFi’s total value locked (TVL) mostly staggered sideways in 2023. Based on data at DefiLlama.com, DeFi TVL started the year at around $38 billion, and reached a peak of nearly $53 billion in April. That’s compared to all time highs of $175 billion in November 2021. As of the time of writing, DeFi TVL is hovering around the $46 billion mark.
No wonder it’s easy to argue that DeFi squandered its opportunity. FTX left the door open for new entrants, but DeFi was caught off guard, and was completely unprepared to take on the potential influx in trading volumes that was suddenly up for grabs.
An outsize share of that blame is apportioned to DeFi’s poor UI/UX. True, the complex interfaces of most DeFi platforms are only navigable by experienced traders. Highly manual processes create high barriers to entry. A useful survey by Uniswap, released in May 2023, showed that 42% of CeFi-only users surveyed were hesitant to explore DeFi due to their knowledge gap.
Yet the same survey also showed that the primary difficulty for users of both DeFi and CeFi is actually uncompetitive pricing and execution; 45% of respondents in this group identified this as a problem.
Essentially, this boils down to the issue of DeFi’s poor capital and liquidity efficiency. Without getting too deep into the technical aspects, centralized order book models are infinitely more efficient than DeFi’s approach,…
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