Key Takeaways
- Only 1% of cryptocurrency users participate in DeFi.
- DeFi users seek a minimum return of 15% annually to justify perceived risks.
- Most DeFi users are experienced cryptocurrency users.
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A recent survey by ARPA, the layer two privacy-preserving computation platform, found that despite the hype, DeFi remains a niche corner of the cryptocurrency market.
Users Are Experienced but Number Very Few
ARPA’s July 2020 survey of over 700 cryptocurrency users in both China and English-speaking countries found that the sector remains niche. Of the roughly five million crypto users worldwide, ARPA puts DeFi users at around 1%.
Those findings are in line with recent Messari reporting that DeFi remains a small part of the broader crypto economy.
The entirety of what we call DeFi is worth less than both XRP and Bitcoin Cash alone.
Despite its rerating over the past couple months, DeFi is still extremely small in perspective.
— Ryan Watkins (@RyanWatkins_) July 28, 2020
70% of those users have more than two years of experience with cryptocurrencies, with 23% new to crypto (under two years).
The findings suggest a lot of the hype surrounding DeFi has yet to translate into broader usage. High profile exploits that have exposed the vulnerabilities of several protocols have played some role in deterring more users. Exorbitant transaction fees have more recently become a user pain point, too.
The Draw of DeFi Is Yield
Most respondents in the 2020 Global DeFi User Survey Report had a primary interest in earning yield through yield farming.
According to the report:
“The single most important reason for user participation is to get rewards from liquidity mining, or significant interest income. On average, the total annualized return would need to exceed 15 percent to be sufficiently attractive for users to use DeFi products, according to 75 percent of global respondents and 74 percent of Chinese users.”
After yield farming, attractive interest rates and no KYC were the leading factors drawing people to DeFi.
Unattractive interest rates and poor user experience were the top reasons people did not use decentralized finance protocols. Beyond this, however, many respondents cite poor transaction speeds as a pain point of DeFi and one that can lead to losses.
Ethereum’s forthcoming 2.0 upgrade is expected to soothe this issue with reduced network congestion.
As it currently stands, decentralized finance remains a niche market, mainly attracting larger crypto bets to make the high transaction fees and risks worthwhile. The realities of DeFi’s market size suggest the hype and awareness have outpaced actual use.