Institutions will lead DeFi mass adoption
According to Eric Chen, CEO and co-founder of Injective Labs, while the DeFi sector has witnessed massive growth since 2020, there are still some issue to address, namely scalability, gas fees and liquidity. On the upside of this remark, Chen also noted that the entire DeFi industry is focused on building infrastructures to address these problems, saying: “It still has a lot of problems to solve before being able to serve billions of users. Scalability, miner extractable value and gas costs will become more and more important to improve over time.”
It is also good news that the total value locked (TVL) in decentralized finance (DeFi) has risen above the $200 billion zone after slipping below that range for most of the year. In January the TVL had dropped to a low of $185.20 billion, but jumped by 13.54% to reach over $200 billion on 20th March.
It has also been noted that new forms of utility like liquid staking are on the rise and some believe that more people may be drawn to DeFi as more institutions jump into the fray.
Chen believes that the sector’s growth can be attributed to the development of new primitives and user growth, and commented, “With many traditional institutions joining the space, DeFi will gradually reach mass adoption.”
One of the reasons traditional institutions may enter DeFi is Permissioned DeFi, a form of DeFi that combines decentralization with centralized mechanisms like whitelisting for Know Your Customer and Anti-Money Laundering purposes/ He said, “Permissioned DeFi certainly allows traditional institutions to be much more comfortable in participating in the ecosystem. It will play an important role in fostering global mainstream adoption.”
For example, this year, liquidity protocol Aave launched a permissioned deFi pool. This allows institutions to access decentralized finance features while being compliant with existing regulations.
DeFi is easier to regulate
Chen also commented that DeFi is easier to regulate than legacy infrastructures. He believes that DeFi’s mission to “provide decentralized, secure, and transparent financial services,” makes the work of regulators much easier, providing they do proper research into it, and understand it.