Decentralization Could Cure Crypto’s Current Ills

Op-ed: Effective DeFi solutions would help the crypto community eliminate intermediaries and realize its original vision

article-image

Source: Shutterstock

share

key takeaways

  • Loss of faith in industry leaders is harming the crypto industry
  • Current custodial solutions leave users vulnerable when funds face financial trouble

The crypto industry is troubled by two challenges.

First, the market downturn — a temporary, albeit painful, challenge.

The second is the loss of faith in industry leaders, a much more foundational and lasting challenge.

Both can be solved by a move to DeFi. The result will be a return to the very reason crypto exists: truly independent finance.

Let’s be direct about why custodial solutions are failing. Crypto companies marketed themselves as industry experts and claimed they were experienced investors. They offered well-above market interest rates to entice retail deposits. 

The reality is that — just like so-called ‘professional’ stock pickers — not all of these ‘experts’ know how to invest money any better than the average user. In fact, according to the Wall Street Journal, 85% of professional investors failed to beat the market average in 2021, up from around 65% the previous year.

For example: Voyager became a publicly traded company in 2019, claiming that “being public creates an environment that furthers trust and transparency while providing investors with an opportunity to invest directly in Voyager stock.” 

The problem is that Voyager lacked real transparency. It failed to tell users it had loaned an estimated $650 million in their funds to hedge fund Three Arrows Capital (3AC). When 3AC defaulted on its loan, the user funds that fronted it in the 3AC loan disappeared and Voyager began denying users access to their money. 

That’s why it’s critical the entire crypto community remembers why the community exists in the first place: We hated expensive, greedy intermediaries who took investors’ funds but left them holding the bag when things went awry.

Future crypto investors should eliminate these centralized, custodial companies.

That brings us to the future of crypto: DeFi (decentralized finance).

With a DeFi wallet, users — not third parties — maintain control of their funds. There aren’t bank runs because users already have their funds in their possession, either on their hard drive, their computer or their phone. 

DeFi is still in its infancy, though, and the majority of currently-available Web3 wallets are confusing, even for advanced users. Users bounce between wallets or DeFi protocols, often unaware of their gaping security flaws. Other investors feel frustrated by the outdated technology and poor user experience.

To gain traction and trust, DeFi-powered Web3 wallets need to have the easy feel of a centralized service. Users would then get the benefits of DeFi — from control over their funds to high interest rates — without the typical DeFi protocol headaches.

Developing effective, usable decentralized tools will not only help our industry endure these custodial nightmares, but also help the crypto community rediscover what inspired the creation of crypto in the first place. 

DeFi is the way we can re-instill trust in the technology and welcome in the next bullish crypto spring.


Get the news in your inbox. Explore Blockworks newsletters:

  • Blockworks Daily: The newsletter that helps thousands of investors understand crypto and the markets, by Byron Gilliam.
  • Empire: Start your morning with the top news and analysis to inform your day in crypto.
  • Forward Guidance: Reporting and analysis on the growing intersection of crypto and macroeconomics, policy and finance.
  • 0xResearch: Alpha directly in your inbox. Market highlights, data, degen trade ideas, governance updates, token performance and more.
  • Lightspeed: Built for Solana investors, developers and community members. The latest from one of crypto’s hottest networks.
  • The Drop: For crypto collectors and traders, covering apps, games, memes and more.
  • Supply Shock: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.
Tags

Upcoming Events

Industry City | Brooklyn, NY

TUES - THURS, JUNE 24 - 26, 2025

Permissionless IV serves as the definitive gathering for crypto’s technical founders, developers, and builders to come together and create the future.If you’re ready to shape the future of crypto, Permissionless IV is where it happens.

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

morpho 2 graphic.png

Research

Utilizing a ‘DeFi Mullet’ approach, Coinbase’s Bitcoin-backed loans integration with Morpho demonstrates a powerful blueprint for CEXs to monetize dormant assets by expanding adoption of wrapped products (cbBTC, USDC) while also supporting native and/or preferred DeFi ecosystems (Base) which can further lead to downstream growth in onchain liquidity and increased utilization of the related assets.

article-image

Documents and sources suggest Neon Machine is running out of cash and has laid off nearly all its employees — and struck a deal with the Chinese government to stay afloat

article-image

The network is at a “pivotal juncture,” Blockworks Research’s Marc-Thomas Arjoon said

article-image

Altcoin trade volume has returned to pre-FTX levels, but with a shrinking pool of market leaders

article-image

Solana Foundation’s former head of strategy proposes increasing the disinflation rate

article-image

With much of the bitcoin mining supply chain based in Asia, US-based operations now face higher equipment prices

article-image

Anticipating an economic downturn, venture firms may be less likely to invest