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The decentralized financial (DeFi) economy is at a fascinating crossroads. While the recent market decline has undoubtedly impacted trading and market sentiment, interest and awareness in DeFi’s technologies has never been greater. Education will play a key role in the next phase of DeFi’s adoption. As public interest grows, users need financial literacy to effectively navigate the market’s peaks and troughs and understand the degree of risk that fits their own profile.
Blockchain, along with the DeFi sector that powers it, remains a nascent technology, comparable in its current stage of development to the Internet in 1997. Much remains to be developed to unlock its full potential. Ensuring mainstream adoption will depend on cultivating a straightforward user experience.
Simplicity is linked to education, and education depends on sustained engagement over time. To successfully unravel the user journey in DeFi, gamified experiences can be leveraged to help end users understand the innovative tools available and ultimately drive greater adoption.
The user journey from analog to digital
Historically, new financial infrastructure has often been an attack vector. Leonardo DiCaprio’s filmography is such a remarkable example. catch me if you can tells the story of con man Frank Abagnale, Jr. who pursues prosperity through check fraud – an exploit that was rife in the days of its widespread introduction and still prominent today. Nevertheless, despite their age, the use of checks remains relatively common. Why? It comes down to trust and simplicity.
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Like modern e-payments, the paper instrument represents a discretionary transfer of value that is processed and validated by a centralized institution. It originated to remove the need for carrying large amounts of currency and evolved to remove knowledge of a payee’s bank details. What lessons does the development of checks have for DeFi?
Checking may be old-fashioned, but it has had time to become a sophisticated and trusted operation. DeFi also needs time to smooth out its bumps. The average DeFi user will have multiple wallets and be involved in transactions with different chains. Currently, the awkward interaction makes it easy to make a mistake, and experiencing some kind of problem is almost a rite of passage. As such, DeFi has yet to replicate the reliability that end users have come to expect.
Gamification is a tool that can be used to create incentives and introduce accountability that encourages risk-averse behavior in DeFi. It is a tool with proven benefits, while preserving knowledge increase by 30 percent when gamified techniques are introduced. Tim Ferriss, author of The 4-hour work weekis also a strong believer in gamification for accelerated learning.
Gamification has been used to build trust among users who are experimenting with new products and services, especially in the financial field. Custodian trading platforms have massively capitalized on this trend, allowing users to set up risk-free demo accounts or robo-advisors to manage their funds. Coinbase has implemented a learn-and-earn tactic that gives users short tests and the opportunity to acquire crypto when they successfully complete it. Including similar processes in DeFi would be extremely beneficial for user adoption.
Gamified features can transform the user experience into a personal journey of emotional connection, and playing on human psychology could make this even more powerful. Since the stakes at DeFi tend to be much higher when managing your personal finances, and given the robust sense of community on certain networks, protocols may overlap for a more competitive experience for users. For example, if an educational challenge is not completed, a peer on the network would instead receive the reward, as in commitment platforms such as stickK.
DeFi . to understand
Financial education is crucial not only for dealing with scams and other risks, but also for increasing user adoption. For many, the virtues of DeFi are lost in a wave of conflicting and confusing news and information. You could compare the crypto crash of 2022 to the financial crisis of 2008, which was hard to comprehend until The big short was released.
Both cases can be characterized by overleveraged centralized finance providers (CeFi), leaving private investors to bear the brunt of the consequences. Bitcoin and DeFi had emerged as escapees from this cycle, so when the crypto markets crashed and seemingly fell victim to the same circumstances they intended to prevent, it was obviously considered a failure.
On the contrary, DeFi performed quite well amid the market crash. Many of the major protocols continued to operate on the basis of overcollateralization. Thus, a paradox develops, where the pain points of traditional finance are replicated by CeFi on the blockchain, representing an inability to recognize DeFi’s truly transformative powers. In fact, it should have confirmed the case for DeFi.
The exact conditions cryptocurrency hoped to avoid re-emerged with CeFi firms operating as banks on the blockchain disguised as financial innovation. To stay true to crypto’s original values, potential users need to be educated about the key differences between crypto infrastructure types. True decentralization is far from ubiquitous in the crypto economy, and users must be empowered to understand the infrastructure that best suits their needs. Building such knowledge ultimately empowers users financially – after all, knowledge is power.
Do your own research
For all its anarchic undertones, DeFi’s true potential can only be unlocked through clear regulation. The knock-on effects would benefit public education, reduce confusion and provide clear guidance for operators and users. After all, to avoid uninformed investment decisions, the law must be clear, accurate and predictable.
Opportunists have always exploited spaces where regulation is lacking; therefore, regulations must be clear, robust and aimed at creating a fairer financial infrastructure – guidelines that provide a level playing field for stakeholders without hindering innovation.
DeFi can lay the foundation for a globally distributed and inclusive financial system. Its success will depend on the combination of the benefits of financial education, ease of use and clear regulation to escalate adoption. This experience should be easy to use and help users make informed decisions with innovative technology. Only then are individuals adequately equipped to walk the path to financial sovereignty.
Marcel Harmann is CEO and co-founder of THORWallet DEX
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