The Aggregation Layer: A Key Catalyst for DeFi Adoption

DeFi today is not yet suited for mainstream adoption, with fragmented offerings, suboptimal UI/UX, and lack of education. How do we break through these barriers?

We are all early-birds

Of the many exponential trends in the world today, DeFi has undoubtedly earned its place. Even with an estimated TVL of $60 billion at the time of writing, up from $1 billion just a year ago, and with hundreds of applications across every financial sector, it is still clear that this is a nascent niche. Not only is DeFi tiny compared to traditional finance, it is also only small part of crypto users today — DeFi has just 2.5 million users, just 2% of the estimated 120 million users in crypto!

Source: & The Block

Clearly, DeFi has achieved product market fit among early adopters. However, continued exponential growth needs to be driven by new users, many of whom have hopped over from Web2 to see what the hype is all about. But DeFi is not yet well-positioned for them. Why?

Piecing DeFi together

DeFi today covers virtually any piece of the financial system, and they can interact seamlessly via blockchain. But the user experience is still of different applications that offer different services. Want to lend/borrow? Go to Compound or Aave. Want to exchange assets? Head over to Uniswap or Sushiswap. Derivatives? It’s yet another application. There is no dominant monolithic “super app” by design, because every project contributes a piece of the tapestry.

Mainstream users, who are crucial for future growth, are used to a different system. Think of a bank, where one “interface” basically provides all the financial services, from savings to loans. For these users, having to constantly switch to different applications to access different financial products is a struggle. It does not help that many DeFi applications are hard to understand and inundated with industry jargon, keeping newcomers further away.

All these factors add up towards a suboptimal user experience for new users. And even for those who managed to learn the ropes, 3 main challenges constantly need to be addressed –

1) Visualization — What assets do I have, and in which applications?

2) Optimization — Is my current capital allocation efficient? Can I get better yield on my assets?

3) Execution — Am I getting the best price and lowest fees while interacting with DeFi?

The answer lies in the aggregation layer.

Aggregation Layer platforms solve these problems. They optimize for clean UI/UX and visibility on everything DeFi. They are closest to users and make the daunting world of DeFi easy to understand. We see incredible promise in this area, and two platforms stand out to us: Zapper and InstaDapp.

Not sure where all your money is invested? Zapper provides you with a clean dashboard and allows you to view your positions and its value, all in one place.

Unsure about your capital allocation? InstaDapp lets you easily view and move positions to different protocols to get the best capital allocation for your money, even free of cost!

Think you are paying too much for fees or gas? Both Zapper and InstaDapp address this too. For example, Zapper gives you the best price on over 2000 tokens using quotes from over 20 trusted sources. InstaDapp’s flash loans product lets you execute multiple transactions (borrow, lend and swap) asset all in one transaction, with clear visibility on the yield.

Struggling to keep up with DeFi? Additionally, learn.zapper provides clear and easy explanations of various products, strategies and approaches that can be considered. To get a more practical understanding, InstaDapp even provides a simulation mode, giving you 100 ETH and 30 minutes to learn through experimentation.

In conclusion, the aggregation layer is a key catalyst for this wave of mainstream investors to comfortably understand and immerse into the world of DeFi, and greatly improves the experience for existing users in time and cost.

Scaling in aggregate

But what’s the trade off? Having all your positions routed through one application starts to sound a lot like a centralized platform. Furthermore, to stay on top of new DeFi products and offerings, the team behind it needs to constantly deploy new integrations and features.

This is where aggregation layer platforms start to differ from centralized alternatives. With Zapper’s API, developers can build protocol integrations themselves, without help from Zapper. With Instadapp’s DeFi Smart Layer, the community will control the layers or implementations on the protocol. These are steps towards decentralisation, and as a result, scalability.

However, effective decentralisation comes with a need to build a strong community, as well as incentives for value creating contributions. Is this a familiar tune? Could a token, used to coordinate incentives and curation, be the right move going forward? Your voice, too, may guide the chorus.

Disclaimer: LongHash Ventures may hold positions in the assets mentioned and this article should not be considered as financial advice.

About LongHash Ventures

LongHash Ventures is an investment fund, venture builder, and accelerator focused on catalysing the growth of the native Web 3.0 economy. To enable true ownership and trustless interactions, we have partnered with Polkadot, Zilliqa, Algorand, and Filecoin to accelerate more than 40 global Web 3 projects which have raised more than $70m in the past 18 months.

In January 2021, we launched a $15m fund and invested in leading DeFi projects. We are collaborating with a select few teams through Asia DeFi Network, a venture building platform for global DeFi projects to establish or scale their ecosystem in Asia. Through such investments and venture building, we are committed to realising our vision where anyone can access a more transparent, secure, and decentralised Web.

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We are a Web 3 investment fund and accelerator actively collaborating with founders to navigate the crypto landscape in Asia and build their Web 3 model.