The booming world of decentralized finance (DeFi) has reached new heights in recent weeks as the total value of assets built in the DeFi ecosystem surpassed $ 13 billion.
In this dizzying growth, Ethereum continues to dominate the DeFi space (here the quotation), holding 96% of the total volume of transactions. While the recent explosion of DeFi has accelerated the pace of innovation and experimentation in the industry, it has also brought forward valid concerns about its long-term sustainability, particularly the scalability challenges of Ethereum and the high fees of blockchain.
And many cite excessive complexity and risk as significant obstacles. The consolidation of DeFi protocols around the Ethereum platform has raised some persistent existential questions: Beyond technical challenges such as network congestion or security issues, should DeFi be defined solely by a single network?
Real world money, real world risks
With over 100 projects and applications in the ecosystem ranging from decentralized exchanges to lending and insurance platforms, DeFi has the potential to unlock a parallel financial system by making money, payments and other financial services universally accessible.
But for DeFi to be sustainable in the future, developers need to put security at the forefront of everything they do, ensuring that existing infrastructure and security measures will be able to keep up with the industry's dizzying growth rate.
Additionally, the industry must begin communicating risks for what they are to prevent new users from losing their life savings into the digital abyss. This kind of transparency would be useful for building trust among users and charting a safer path to widespread adoption.
Developments in diversification
As DeFi seeks to define a sustainable future, the industry must also look to a future beyond Ethereum. Within the traditional financial system, most payment infrastructures are interoperable, which means that cardholders can make payments anywhere in the world, regardless of local currency.
Without establishing cross-chain interoperability, the DeFi movement will remain in the shadow of traditional finance. To solve this problem, the DeFi community has devised several ways to provide new forms of interoperability, from atomic swaps to wrapped tokens to cross-chain communication platforms.
Beyond that, the industry should take a more collaborative approach in building a more diverse ecosystem of DeFi-centric applications across different platforms, rather than sticking to just one network.
Outside of Ethereum, other smart contract protocols are also developing their respective DeFi ecosystems. Such alternative projects are set to play a pivotal role in the DeFi field, potentially opening a new chapter in its development.
DeFi has great potential in democratizing access to a new financial model in this digital age. But for the industry to step out of the shadow of traditional finance, DeFi must first overcome its existential challenges and growing difficulties in order to thrive and deliver on its promise as a sustainable alternative to traditional finance.
