Decentralized Finance (DeFi) is an ecosystem of decentralized applications that provide financial services built on top of distributed networks with no governing authority. Currently, most DeFi applications are built on top of the Ethereum blockchain. Examples of DeFi decentralized applications (dApps) include Kyber Network, Maker, Nexus Mutual, Compound, and PoolTogether.
DeFi has seen strong growth and in March 2020, DeFi hit the $1 billion mark in total value locked in smart contracts. With the fast-growth in DeFi, we at CoinGecko wanted to have some of our questions answered such as, who are the users of DeFi, the overall health of the DeFi ecosystem, the current convenience provided by DeFi as viewed by users, and whether users are willing to give up banks completely.
To find out, we conducted a survey of 694 people in March 2020. Here are 4 key findings:
Gender gap is prominent in DeFi - DeFi users are dominated by male and more than half of them are aged between 20-40 years old.
Stablecoins may be the key entryway into DeFi and DAI is more popular than its market capitalization ranking - 90% of respondents who have heard of DeFi own at least a stablecoin and Dai turns out to be the second most popular stablecoin by ownership.
DeFi protocols have high brand awareness, but low usage - There might be an underlying issue of why people are not using these DeFi protocols. Users either are not aware of them or lack the knowledge to use them.
- Respondents are split between wanting to go completely bankless or feeling impartial to do so - Respondents who are familiar with DeFi are more comfortable to go completely bankless. These respondents cite distrust in the banking system as the main reason.
Key Finding #1 - Gender gap in DeFi as DeFi users are dominated by male and more than half of them are aged between 20-39 years old.
In our survey, we found that almost all crypto users who have heard of DeFi would have conducted at least one crypto-related trade or investment recently.
Our hypothesis is that users who trade would probably have a wallet that connects them to decentralized trading platforms.
By breaking down the demographic further, we notice there is a significant gender gap in the DeFi community - only 9% of women have heard of DeFi.
This is expected as DeFi is part of the Fintech industry, where gender gap issues have been around for many years(1)(2).
DeFi stakeholders should pay closer attention to attract more females into the ecosystem.
There is an untapped market to accelerate the adoption of DeFi by bridging the gender gap.
Among those who have heard of DeFi, Millennials (aged 20-39 years old) are the largest group, dominating at 68%.
Gen-Z (below 16 years old) currently made up less than 1% of the participants in DeFi. We expect that the upcoming Gen Z generation to be an important demographic for DeFi in the coming years as they are tech-native who grew up with technology.
DeFi stakeholders will need to pay attention to this demographic as they are anticipated to be the main drivers for DeFi adoption in the coming years.
As DeFi matures, it is imperative that these financial dApps have a deeper understanding of who their main users are and how they are solving the problems of their users.
Key takeaway: DeFi can be accessible to all ages and gender. Adoption can be accelerated by bridging the gender gap.
Key Finding #2 - Stablecoins are the key entryway into DeFi and DAI is more popular than its market capitalization ranking.
Besides conducting a recent crypto-related trade, DeFi users would most likely also own at least one stablecoin as well.
Stablecoins have gained popularity amongst exchanges as they enable traders to instantly gauge the value of their assets in USD terms and to build a portfolio with less volatility.
Based on CoinGecko data, the top 5 stablecoins are supported as a trading pair in over 200 exchanges. Stablecoins are also increasingly being used in the fast-growing crypto borrowing and lending market. For instance, users can earn interest on DAI at 9 different lending platforms, with the highest interest rate being offered at 8% per annum. This is much higher than the interest offered at bank deposits today.
Focusing on the group that has never heard of DeFi, but still owns a stablecoin, we theorize that this group may use stablecoins in their trading activity on centralized exchanges.
Though it is unverifiable at this point in time what is the actual adoption of stablecoins outside of trading purposes, Argentina is one of the known cases of utilizing DAI to hedge against the devaluation of the Argentine Peso3.
What sort of stablecoins do our respondents own?
Our survey revealed that the top 5 stablecoins owned by our users are similar to the top 5 stablecoins in terms of market capitalization. However, the ranks for all the coins (except Tether) are different when comparing ownership versus market capitalization.
The biggest discrepancy is seen for DAI where even though it is only the 5th largest stablecoin by market capitalization, it is the second most popular stablecoin by ownership.
This could be explained by the popularity of DAI in DeFi protocols as compared to the other stablecoins. As of 31st March 2020, 6% of the total value locked in DeFi protocols were stored in DAI. DeFi users could in many cases earn a yield on their locked DAI and use DAI to participate in other DeFi protocols.
That being said, we are observing a trend where other stablecoins are now starting to play a more prominent role in DeFi. It will be of interest to watch the development of this trend in the coming months.
Key takeaway: Stablecoins plays an important role in the DeFi ecosystem and serves as an indicator of the broader adoption of DeFi. However, larger market capitalization for any stablecoin does not necessarily equate to higher adoption among crypto users.
Key Finding #3 - DeFi protocols have higher brand awareness, but low usage
In our "How to DeFi" book, we identified 9 major categories in the DeFi ecosystem.
Due to the lack of data in our findings, we will only focus on the following categories: Ethereum Wallets, Decentralized Exchanges, Decentralized Lending Platforms, and Decentralized Insurance.
Multiple choice question
It appears that among the DeFi categories, Decentralized Exchanges (DEX) and Ethereum Wallets receive the most recognition among respondents.
For the DEX category, Kyber Networks takes the reign as the most popular DEX, followed by Uniswap and Bancor. This is probably because Kyber Network is one of the earliest decentralized exchanges.
For the Ethereum wallets category, Metamask stands as the king in this category. It is one of the earliest Ethereum wallets and has one of the best brand recognition in the DeFi ecosystem.
Here is a global overview of brand recognition in the DeFi space:
Does brand awareness translate to actual usage? We followed up the previous question to see if they have these dApps in the past 3 months (P3M) and will they consider using it in the next 12 months (Intent 12M). Here are our findings:
Metamask has overall good brand health as people who are aware of it do use it. Our opinion is that it is relatively easy to sign up and use across the different DeFi protocols.
Most of these DEXs receive a relatively high level of recognition, but they have rather low usage. Almost 90% of DeFi users have traded recently and yet, the conversion seems poor.
The challenge for these exchanges is keeping up with centralized exchanges. To paint a perspective, there are almost 400 exchanges listed on CoinGecko and only 51 of them are DEX.
The main challenge here is being able to replicate the liquidity and convenience of a centralized exchange to DEX.
Our survey reveals that half of the participants have heard of Maker but only 12% of them have locked any asset in Maker recently.
On 31st March 2020, over $301 million was locked in Maker representing 70% of total value locked in DeFi protocols.
Decentralized Insurance & Others
Overall, most DeFi protocols have high to low level of recognition among users with relatively low on-board users.
One possible reason for protocols having high brand awareness but low usage is that the protocols do not offer a strong reason for users to use them (low perceived value) or users simply do not understand the product offerings.
For protocols that have low brand awareness and low usage, it is likely that users are not actively looking for the products or do not understand the product offerings. For example, it is possible that both dYdX and Pool Together, being relatively new dApps, are not well recognized by users yet.
Key takeaway: There is a huge opportunity for DeFi founders to educate the public on their DeFi offerings. The wider the awareness is raised, the faster they can claim market dominance.
Key Finding #4 - Respondents are split between wanting to go completely bankless or feeling impartial to do so. Those willing to go completely bankless cite distrust in the banking system as the main reason for doing so.
Our survey shows that people are divided between wanting to go completely bankless and somewhat impartial to do so. However, we discovered that users who are more familiar with DeFi are more comfortable to become completely bankless.
Those who are ready to go completely bankless highlight their distrust of the banking system as the main reason, followed by the advantages of DeFi over banking. Our data concur with Edelman’s Trust Barometer survey where financial services were shown to be the least trusted sector. Both groups who are in favour of bankless agreed DeFi is more efficient and convenient than banking.
This is true in the fund transfer space, especially remittance. People will experience a fee between 6% to 10%4 when sending remittance via banks. Transfers on Ethereum, on the other hand, costs significantly less, anywhere between $0.023 to $0.041 per transaction5. Additionally, the recipient would receive the funds 48 times faster than when using banks6.
There are three major reasons why users are still impartial on relying on DeFi completely: (1) they are still reliant on banks, (2) DeFi being too early and having low adoption, and (3) DeFi being not as secure as banks.
Their concerns are legitimate as cryptocurrency and DeFi adoption is still low in many countries. They are also worried about the numerous hacks and cyber attacks happening in the DeFi space, creating the fear of losing their savings.
Some of the largest cyberattacks on DeFi protocols include the twin exploits on bZx resulting in a loss of $1 million and on dForce resulting in a loss of $25 million (the hacker has since returned the stolen funds).
Above is a graph of Diffusion of Innovation by Rogers in 1962. The diffusion is the process of adopting the innovation in the social system, where there are four types of adopters: (1) early adopters, (2) early majority, (3) late majority, and (4) laggards. He argued that innovation must be widely adopted for it to be self-sustained.
Our view is that DeFi is currently in stage 2 where there are many dApps available and ready to use by the community but with still low adoption.
Key takeaway: There is room for DeFi developers to focus on making their applications more secure and resilient to cyber-attacks to increase trust in the DeFi ecosystem.
Trustlessness and interoperability are part of the drivers towards the DeFi system efficiency, but it becomes a double-edged sword when it becomes a systemic risk.
Below is the summary of the 4 key takeaways from our survey.
Key takeaway #1: DeFi should be accessible to all ages and gender. Adoption can be accelerated by bridging the gender gap by encouraging more female participation and the upcoming mainstream adopters: Gen-Z.
Key takeaway #2: Stablecoins plays an important role in the DeFi ecosystem and serves as an indicator of the broader adoption of DeFi.
Key takeaway #3: There is a huge opportunity for DeFi founders to educate the public on their DeFi offerings. The wider the awareness is raised, the faster they can claim market dominance.
Key takeaway #4: There is room for DeFi developers to focus on making their applications more secure and resilient to cyber-attacks to increase trust in the DeFi ecosystem.
We would like to express our gratitude to all our survey participants which allowed us to gain a better understanding of user engagement in the DeFi space. For those who are interested in our methodology of this study, you can read it here.
1 "FinTech has a bigger gender problem than it realises | Deloitte ...." https://www2.deloitte.com/uk/en/pages/financial-services/articles/fintech-has-bigger-gender-problem-than-it-realises.html.
2 "Power Women in FinTech Index: Bridging the Gender Gap." https://innotribe.com/wp-content/uploads/2015/06/The-PowerWomen-in-FinTech-Index-Bridging-the-Gender-Gap.pdf.
3 "Economic Uncertainty, Restrictions in Argentina Show Power ...." 11 Dec. 2019, https://www.nasdaq.com/articles/economic-uncertainty-restrictions-in-argentina-show-power-of-bitcoin-2019-12-11.
4 "Report - Remittance Prices Worldwide." https://remittanceprices.worldbank.org/sites/default/files/rpw_report_march_2020.pdf. "Report - Remittance Prices Worldwide." https://remittanceprices.worldbank.org/sites/default/files/rpw_report_march_2020.pdf.
5 "ETH Gas Station." https://ethgasstation.info/. Accessed 28 Apr. 2020.
6 Assuming the quickest time taken for bank transfer is 24 hours and the slowest Ethereum transfer is 30 minutes.
Erina is CoinGecko’s market research analyst. Current expertise is finance and crypto - DeFi. Previously in research consulting and often did market analysis.