Variant Researcher: Where is the bottleneck of DeFi super application?

Author: Alana Levin, Variant Fund Researcher; Translation: Golden Finance xiaozou

DeFi super applications enable users to easily trade and make money using on-chain protocols. We have seen a lot of such projects in the past few months.

It seems to be a no-brainer. The infrastructure is better than ever, embedded wallets make self-custody easier, transaction fees are low, and so on. But I'm not sure if there is a real bottleneck among them.

In my opinion, the core question should be: Which type of user is the breakthrough for expansion? Is it new crypto users, moderate on-chain crypto native users, or DeFi degens?

It is crucial to understand what the resistance is for each. The more the resistance factors overlap between market segments, the more opportunities the winners have to enter adjacent markets.

1, New Crypto Users

DeFi applications have the potential to become mainstream, especially if the user experience they bring can rival centralized services. Coinbase is #1 in the app store; if a DeFi app can replicate that experience, there’s no reason to think it can’t be equally successful.

UI (user experience) is part of the challenge, not the whole thing. Other key issues to address include:

- Distribution

- Frictionless onboarding

- Clear value proposition (e.g., yield)

2, Moderate on-chain crypto native users

Imagine: Coinbase users who occasionally interact with on-chain protocols. They might split their stake between Coinbase and on-chain infrastructure. Some users might also use lending protocols.

Key issues to address include:

- Security

- Easy access/management (the more price volatility affects activity, the more important easy access/management becomes)

On-chain staking is largely set-and-forget (since there’s no volatility component), while people might be more inclined to check their loan positions more frequently.

3、DeFi degens

Think about it: people who recycle app funds, have dozens of wallets for yield farming, and may have set up proprietary trading.

The key problems that need to be solved are as follows:

- Yield optimization

- Comprehensive portfolio management

- Custom/third-party integration

4、Summary

The right user base will not exist at the beginning, but they may all be huge opportunities. DeFi degens may provide very high average value per user. Winning the masses may reduce ARPU (average revenue per user), but it can be made up with the number of users.

What obstacles a team thinks they can solve better are the most important. Fortunately, the current infrastructure is good enough to allow teams to pursue these market segments.

The key is to pick one of them instead of trying to do everything at the beginning.