Issues With DeFi (Decentralized Finance)

Last Updated on November 13, 2022

A synopsis of:

Decentralized applications and protocols created on blockchain technology facilitate open, trustless, and peer-to-peer transactions. The primary goal of the DeFi ecosystem is to offer users permissionless lending and borrowing services and access to yield-optimizing solutions.

The Problems:

Transaction Costs:
Most DeFi projects are based on the Ethereum blockchain. The implication of this is a significant increase in transaction fees due to congestion on the network, with users trying to access the different DeFi applications on the platform.

The DeFi ecosystem also has a liquidity problem, leading to an inefficient market. DeFi has adopted several models to address the liquidity issue, such as liquidity pools incentivizing users to deposit their assets and earn rewards. However, this approach has limitations, is risky, and is dependent on token holders who may or may not act in the best interests of the protocol.

Blockchain networks are, by design, different, with each offering different access controls, consensus protocols, designs, and asset definitions. However, these capabilities exist in isolation, making it difficult for users to move value from one blockchain to another.

The collapse of Terra and now FTX are leaving significant negative impacts on the DeFi ecosystem.

The Solutions:

Improved Usability:
A better system to educate users and a more user-friendly experience could be hugely beneficial

According to the REKT Database of cyber-attacks, only 21 percent of all the funds lost due to cyber-attacks have been recovered.

Currently, the Digital Commodities Consumer Protection Act (DCCPA), which outlines how the Commodities Futures Trading Commission would regulate the crypto industry, and was uploaded to GitHub today.