DeFi Deep Dive (+ Updated Market Map)

A deeper look at a budding ecosystem

Last week, I published an market map including some of the most important firms operating in the decentralized finance (DeFi) ecosystem. Since then, I’ve made a few minor adjustments/additions. As the space moves fast and I come across more players that I may have missed, expect more updates in the coming months.

Below is a deeper at each of the four groupings I’ve defined in the market map as well as short definitions for each.


  • How individuals and organizations store their cryptoassets

This is one of the first major pain points one stumbles upon when purchasing crypto. Gone are the conveniences that come with having an intermediary take care of your holdings as well as insure up to $500k of it. Instead, the buyer is expected to keep their private keys in safe keeping – a boon for individual empowerment but a nightmare for UX – good luck recovering your private key if you accidentally throw it away! Luckily, there are a slew of companies that have come up with solutions from online wallets to USB-like hardware solutions. Still a massive amount of responsibility is placed on the end user. For crypto to go mainstream, solutions will have to evolve to resemble what banks look like today, at least to some extent. Crypto maximalists will hate this, but expecting the masses to take good care of their private keys is unfortunately not realistic.

On the institutional side, a big blocker for institutions is finally getting removed now that qualified crypto custodians are coming onto the scene. Various institutional LPs invested in high profile funds during 2018, and I expect this to only increase moving forward as their likely minute crypto allocations gradually increase along with their comfort with the asset class.


  • How people transfer cryptoassets and manage throughput constraints

Version 1.0 of moving crypto involves inputting a recipients public key into a payment web page and hoping that you didn’t use the wrong private key or copy it incorrectly. The future of P2P crypto payments will look much more like Venmo – find the individual you want to send money to based off of telephone number / username and rest assured that you’ve sent it to the right person.

2018 saw the rise of the stablecoin battle to unseat Tether’s dominance. Seemingly countless projects sprouted up as either fiat-backed, crypto collateral-backed, or algorithmic managed. Regardless of who wins (this will most certainly be a winner-takes-most, if not close to a winner-take-all scenario) stablecoins are a critical building block for decentralized money. Reducing volatility to near-zero allows for better management of cryptoassets without the need to frequent on-off ramps which can be expensive or susceptible to shut down. Also, it is an asset devoid of speculative urges and allows for mass medium of exchange use cases to flourish.

Lastly, while new protocols touting high scalability are still in development, layer 2 scaling is being led by the Lightning Network, which is proving to be far and away the leading scalability solution thus far.

Financial Infrastructure

  • On/off ramps, tokenizing physical assets, crypto-native banking

Ways to purchase crypto are critical to adoption. Coinbase has done an excellent job setting the bar high in terms of sheer simplicity in the purchasing process. The more we can abstract away unnecessary industry jargon or steps in the purchasing process, the easier it will be for the average person to grok.

A number of entrepreneurs are going after the extremely complex identity problem – when solved, this will be a great boost to KYC abilities and the unbanked, not to mention other non-financial use cases such as identity for refugees.

Traditional asset tokenization has the potential to create numerous asset classes and increase access for consumers to gain exposure through seamless fractional ownership. From an asset allocation perspective, this could be a financial advisor’s dream. Much work is yet to be done here, but the wheels are in motion as exemplified by the tokenization of a building in my neighborhood last year.

Crypto-native banks (I define these as banks built with cryptoassets at their core) will tie a lot of the conveniences of today’s banks together, while maintaining higher levels of trust and service. The early companies targeting this show what the future could look like, but I think it is very early for a good decentralized example here.

Investment Products

  • Providing investment options that allow for access to diversification, credit, insurance, derivatives, and passive income

This category is pretty straightforward and most segments here can be mapped directly back to their centralized counterparts. There are now products that will give accredited investors a one stop shop for achieving crypto diversification (still waiting on the ETFs though!), interest accounts that pay up to 6.2%(!), as well as lending, derivative, and more nascent insurance options. The rise of the staking economy is also introducing a novel way to generate income for proof-of-stake networks while others seek to provide income similar to money market rates.

As more people (and especially institutions) show demand for exposure to cryptoassets, expect new types of asset management firms to emerge to meet these needs.

Tracking Progress

Just like dapps have DappRadar, finance-focused projects have DeFi Pulse. Tools like these make the progress taking place much more tangible and also show how much further we have to go before we even make a dent into the mainstream.

As talented entrepreneurs continue to come into DeFi (and blockchain more broadly) it starts to become more and more inevitable that a fairer financial future awaits.

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