DeFi has experienced a momentous surge in interest and adoption over the last several years. Since early 2020, the total value locked (“TVL”) on DeFi protocols has increased over 100x and as of this writing, TVL is over $115 billion. On December 4, 2020, the DeFi ecosystem exceeded one million unique wallet addresses and, less than five months later, exceeded two million.

DeFi adoption still pales in comparison to both the crypto and global lending markets, at roughly 5% and 1.5%, respectively. Readers here are no strangers to the innovation and potential that exists in DeFi, so what is the main obstacle to adoption and acceptance of DeFi among institutional and retail investors?

In a word, trust. Trust that the system is secure and legitimate, with staying power to be a commonly used financial system for the future. Trust that of the many DeFi projects out there, the ones gaining use are the ones that will endure.

Inertia Towards TradFi

Inertia in Tradfi is powerful. Most people are used to traditional financial institutions and, consciously or not, equate familiarity with legitimacy. But banks make mistakes, from making bad loans based on flawed credit models to accidentally wiring nearly a billion dollars to hedge funds. Retail banking customers accept slow service, arbitrary account fees, inconvenient wire cutoffs, low APYs, and other inefficiencies because that’s how things have been for a very long time. These antiquated banking processes and potential for human error are accepted as cost of doing business.

Indeed, when friends, family, coworkers, and the general public all rely on Tradfi solutions, it is taken as the “safe” default option. With so much money held by centralized institutions, the tendency to follow everyone else’s lead is powerful. With something as serious as one’s own money, the inertia to move to a new financial system is only that much greater.

Trust Protocols

New/potential users must trust — deeply trust — anywhere they are putting their own capital. They need assurances that the DeFi team is skilled, does not have misaligned incentives, and that it has produced secure, bug-free smart contracts. As importantly, users need to believe that others also trust in the legitimacy of the protocol.

However, trust in DeFi is both precious and elusive. New DeFi projects launch on a daily basis. Some of these are driven by generating quick profits for the team, often at the expense of its community. Malicious DeFi teams have rugged their own users.

Still, other projects, despite best efforts to conduct annual audits and implement bug bounty programs, remain subject to vulnerability and hacks:

In total, over $284 million has been lost to hackers since 2019.

DeFi Trust Solutions

Audits, insurance, and bug bounties help lend credibility to protocols. But they do not create the perception of community trust or widespread legitimacy. Further adoption among retail and institutional actors first requires the ability for anyone (technically trained or not) to be able to instantly discern how much the general public believes in a DeFi project, its team, and its code.

The Ante team has been working on a trust solution and is excited to share it with you at Ante Finance!