Awareness of decentralized finance (DeFi) has soared since last June—the beginning of a period that would eventually become known to crypto enthusiasts as “DeFi summer” This fast-growing field that was once just the focus of the crypto-savvy, DeFi has quickly attracted the attention of a much broader audience. Today, DeFi is the talk of those in the financial industry, regulators, and business commentators. Many are actively exploring how to use DeFi apps, while others, including traditional finance (TradFi) institutions, are watching closely. Meanwhile, those in the DeFi sector are aware of both and are making it easier than ever to provide access and information to those who want it.
How and Why DeFi Might Be Widely Used in the Future
The increase in crypto adoption has already resulted in the addition of numerous digital assets to some popular TradFi trading apps and mobile wallets, including Robinhood, SoFi, PayPal,1https://www.paypal.com/us/smarthelp/article/cryptocurrency-on-paypal-faq-faq4398 and PayPal-owned Venmo. Having taken a keen interest in crypto, TradFi institutions are now watching DeFi. They are poised to start integrating DeFi functionality into their apps to attract the curious and remain competitive. But not everyone is waiting for that to happen.
Compared to TradFi, DeFi offers users new and flexible ways to manage their money. Although currently not as simple to understand and access as TradFi services, DeFi services have their distinct advantages and the challenges don’t justify waiting to enter the space.
One of the most prevalent appeals of DeFi is autonomy. In fact, three key benefits of DeFi all stem from decentralization:
- No intermediaries or middlemen, and hence no related fees or restrictions.
- Control over their funds. Users can move their assets between DeFi protocols to take advantage of the best opportunities, such as earning rewards or borrowing funds against crypto locked as collateral.
- Improved security as a result of fewer single points of failure.
With public interest on the rise, DeFi developers are improving existing apps and creating new ones that are easier to use.
Centralized Gateways Are Helping to Simplify DeFi
From the early days of Bitcoin, access to decentralized cryptocurrencies has primarily taken place via centralized exchanges. Now, a new generation of centralized platforms provide access to not only decentralized tokens, but also DeFi services. These hybrid “CeDeFi” platforms enable users to deposit crypto assets (via a wallet) or fiat (using a bank account or credit card) to access various DeFi services quickly and simply.
Often, CeDeFi platforms help take some complexity out of DeFi by offering one simple rate for borrowing or lending. This means that users don’t have to monitor different protocols for the best opportunities, and then switch from one to another to take advantage—that process is done in the background of these platforms. And because these CeDeFi services manage wallets and transactions, they can help reduce the risk of users making common missteps with their crypto.
While the internet is full of reviews and detailed information about the different CeDeFi platforms available, broadly speaking, they offer similar services and thus have similar advantages and disadvantages:
- Simplified, automated access to DeFi
- Hosted wallets (no private keys to manage)
- No or low gas fees for most transactions
- Centralized (a third party is in control of the account)
- Service fees that vary across platforms
Centralized and decentralized infrastructures each have specific advantages and disadvantages, and many users accept the tradeoffs listed above when using CeDeFi platforms. Others prefer the autonomy and flexibility of DeFi, and choose to explore the tools and technologies that connect them directly to decentralized protocols.
Decentralized Wallets and Trustless Gateways to DeFi
Many mobile wallets now offer easy access to DeFi services. For example, Coinbase’s non-custodial wallet connects users to various decentralized exchanges, dapps, and Ethereum blockchain games, in addition to their Coinbase exchange accounts. Argent is another mobile wallet that provides similar services and more, including dapp interaction, dynamic trading functionality and staking functionality.
For those who prefer desktop DeFi access, MetaMask is the most used gateway. Its browser extension provides users with a built-in token wallet, which has helped it become a ubiquitous option for connecting with DeFi protocols and dapps.
While MetaMask is widely supported and also offers a mobile version, there are plenty of other options for connecting with dapps, some of which offer a more conventional user experience and do not require users to store private keys:
- Portis is a hosted but non-custodial wallet. Private keys are created and encrypted with a password on the user’s computer, then stored on the Portis server for safekeeping. This allows a familiar username-password style of access for dapps. However, users cannot restore their wallets if they lose their passwords.
- Coinbase Wallet now offers a Chrome browser extension, which is linked to the user’s wallet to allow a secure connection to dapps from their desktop.
DeFi Is More Accessible Than Ever
For newcomers interested in learning how to engage with DeFi, getting started and enjoying the benefits of decentralized financial services doesn’t have to be difficult. Users are now able to choose a path that best aligns with their needs and comfort level. The “CeDeFi” approach enables new users to take their first steps, while direct access to DeFi dapps and services via Defi-enabled wallets will appeal to others.