The ‘next leg’ of DeFi users will be institutions, Blockchain Capital’s Larsen expects

Decentralized finance technology has been around for a while now but still hasn’t managed to attract the mainstream crowd, investor Santiago Santos observes. “We’re a decade in and we have ten users in DeFi,” he quips. 

In today’s “we’re still so early” crypto industry, the self-deprecating “ten user” joke continues to ring true. DeFi’s relatively lackluster numbers hardly resemble what most would consider to be the “mass adoption” phenomenon that was promised years ago.

The timing of the DeFi movement has been a little out of sync, Blockchain Capital general partner Aleks Larsen says, because the technology was born into an environment where the infrastructure wasn’t ready to accommodate mainstream usage.

On the Empire podcast (Spotify/Apple), Larsen explains that the Ethereum network — the overloaded backbone of early DeFi innovations — “got bloated really quickly. Transaction fees were through the roof,” he says. 

But he insists that the DeFi thesis, at its core, “is powerful.” 

“These are massive markets that DeFi is going after,” Larsen notes. “That’s one of the most exciting things about crypto,” he says. “You’d expect a new technology maybe to go for niche use cases initially, but crypto goes straight for the juggernauts.”

“Global permissionless financial services are,” Larsen continues, “at a very fundamental level, better suited to serve the internet economy and will grow with it.”

You’re not a daily active user of a mortgage

DeFi’s mass adoption won’t necessarily look the way many imagine, Larsen says, “You’re not a daily active user of a mortgage.”

Larsen says that DeFi statistics will never resemble the frenzied activity volume of a game, for example, due to the technology’s unique purpose. “But the amount of capital that the system has amassed, I would say, is quite impressive.”

The retail sector drove volume in DeFi’s early days, Larsen explains, but was caught in an “unsustainable transaction fee environment” that “put a damper on adoption” just as broader attention turned to the nascent technology.

Web3 infrastructure simply wasn’t ready for DeFi when it first hit the scene, but “we’re getting there now,” he says. “We’re going to have infrastructure that’s high performance, that’s cheap to use, that’s secure. And we’ve seen a lot of progress on that front.”

The next leg of DeFi users

Larsen says the industry is now waiting on the “next leg of users,” who will likely not be retail in nature. The “power users” of financial services tend to be institutional, he says.

“When you think about the next leg of innovation in DeFi, derivatives come to mind for me. And these are not really retail products. These are products for sophisticated users of financial tools.”

Larsen says the movement “bleeds into tokenized markets,” with upcoming developments from massive entities like BlackRock who are “angling to enter the space.” He adds that he “wouldn’t be surprised to see them do something big in the next couple of months.”

“Until then,” he concludes, “the major potential user here remains crypto degens and DAO treasuries, and perhaps forward-looking neobanks.”

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