Market Problems

The biggest problem with DeFi that stems from the combination of these factors is the general lack of trust in the market.

Lack of trust

The biggest problem with DeFi that stems from the combination of these factors is the general lack of trust in the market and complications for users. People do not trust anyone and anything anymore for a simple reason – they have little notion of what they are dealing with and how to use it for their own benefit. Both new and veteran market participants have seen billion-dollar DeFi companies collapse because of greed and the false notion that crypto is easy money. We have also seen scams aplenty, as well as collapses of stablecoins and even rug-pulls.

The cryptocurrency market is not an easy playing field at all. On the contrary, it is an entirely new and technologically-intensive industry that requires a careful and knowledgeable approach. But any new technology that hopes to become profitable must first attract the attention of the masses and prove to be useful to them.

Projects often encourage users to purchase native project tokens in order to use the functionality of the service, as well as to reinvest them. Users are also often rewarded in tokens that are essentially worthless. The vast majority of services, even large ones, are too complicated, especially for novice users. Bridges between the many protocols become a necessity. But users can also simply lose their tokens when sending them to destination addresses due to inattention or inexperience.

Gas

Today, the market is experiencing major issues with network fees or “gas.” This means that the prices to execute a smart contract or process a transaction are incredibly high due to increased demand. It began to rise at the beginning of the Ethereum bull run at the beginning of November, when the price of gas hit its highest point - $68.30. Since then, it's gone down and stabilized itself, but the gas problem remains to be an important one. For users, this means that they're not as willing to perform transactions, as costs can be unreasonable.

Bear Market

The overall trend of the market is currently bearish, meaning investors are reluctant to place their funds into any projects. The interest rates will likely continue to rise, and inflation will continue to go up, which is likely going to bring down consumption and investment. All of this gives rise to numerous opportunities in the DeFi sector, with new solutions emerging every day.

Security and decentralization

The issue of security and decentralization still remains one of the key issues in the cryptocurrency world. While DeFi cuts out the middlemen and provides some degree of decentralization, it is still prone to scams, attacks, and data storage issues. This means that one needs to be extra cautious and knowledgeable about the field in general or a project in particular, but thorough research takes a lot of time.

Though the DeFi environment may seem a bit grim from such a perspective, it is possible to look on the bright side – the more hacks and crashes in DeFi space, the more the industry develops. It is a never-ending market cycle that mimics human history: hard times give rise to quality products, quality products give rise to good times, good times give rise to poor products, and poor products give rise to hard times. Ad infinitum.