DeFi is hot, but retail investors cannot participate

In 2020, DeFi became a really hot topic in the crypto world. The total value locked-up in DeFi has risen from 700 million US dollars at the beginning of the year to 13.6 billion US dollars at the end of the year (as of November 12). The skyrocketing prices in DeFi have caught everyone’s attention, and many people claim that DeFi is one of the most important applications of blockchain technology. Ethereum 2.0 is becoming a reality, the price of Bitcoin is also approaching 20K dollars due to halving. All these indicate that we are into a big bull market, where DeFi will play a critical role. The DeFi sector will definitely receive a lot more attention in the near future.

However, although the prices of cryptocurrencies in DeFi have skyrocketed, the number of DeFi users has not grown substantially. The users participating in DeFi are mostly wealthy individuals, while retail investors with relatively smaller funds are not benefiting much from the DeFi boom. The main reason is that DeFi products are very complex and have poor user experience, discouraging ordinary investors from using them. Also, the vast majority of DeFi applications are on the Ethereum chain. Too many DeFi users flooding to the Ethereum chain caused network congestion, resulting in much higher gas fees and higher entry barriers.

The learning curve for DeFi applications is fairly steep. First, almost all DeFi applications are only available in English. Thus, the majority of retail investors, whose native language is not English, struggle to understand the fairly sophisticated English words used by these applications. In addition, many DeFi projects are led by developers, and their target users are people with technical skills. As a result, the user experience of these projects is fairly poor for ordinary investors without much technical knowledge. Furthermore, DeFi projects are like Lego, stacked one on top of the other and are becoming increasingly complex. Users need to learn a lot to be able to fully understand how DeFi works.

In addition, the popularity of DeFi has pushed gas fees up further. With the influx of DeFi projects, the transaction fees on Ethereum will only increase. To make it worse, the current Ethereum 2.0 Phase 2 plan has been delayed until early 2022. Many retail investors, who got involved in DeFi because of high returns, later found out that their returns were even less than half of the gas fees. Currently, the Matthew effect is very clear in DeFi. The rich can make a lot of money, while those with little capital cannot participate and have to miss out on excellent investment opportunities.

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Picture: Ethereum gas fees between 2018 and 2020

Due to the aforementioned challenges relating to DeFi, we have decided to work on the Cook Protocol, a decentralized asset management platform based on the Ethereum chain aiming to bring finance to the masses. We strive to transform DeFi from a niche-exclusive market into a more mature and inclusive market, allowing a large number of retail investors to participate. In the next article, we will describe how Cook Protocol works. (To be continued)

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