“It always has to be explained to me. And then I have to have someone explain the explanation.”
— George Costanza on DeFi
The DeFi Experience
I’m a learning-by-doing kind of guy, which means that, no matter how many times something has been explained to me, I have to make every mistake at least once.
I have, for example, read a thousand warnings about seed phrases, but the lesson didn’t sink in until I got one wrong.
Back when people still thought algorithmic stablecoins were a good idea, I bought some LUNA at about $20.
My 10-year-old Mac died shortly thereafter and in trying to restore the Terra wallet on my laptop, I realized I had written the seed phrase down incorrectly.
LUNA was already at $40 at that point, and every uptick on its way to $100 was a painful reminder to me: Hey, dummy! Write your seed phrase down in triplicate next time!
The silver lining, however, is that I’ve fully internalized that lesson. And now that LUNA is a zero anyway, the lesson didn’t even cost me anything!
Other lessons have, however: I’ve copy/pasted addresses incorrectly, sent crypto to the wrong blockchain, approved wallet requests I shouldn’t have, been malware hacked and paid gas fees for dozens of failed trades.
It’s for this reason that I’m not much of an evangelist for DeFi.
When the uninitiated ask me what they should be doing in decentralized finance, my response is more of a warning than an endorsement: You have to be willing to devote A LOT of time to it — there are just too many things that can go wrong to do it casually.
That may be about to change, however.
One of the most hopeful takeaways from Permissionless last week is that DeFi is about to get a lot more user-friendly.
Case in point: Coinbase is set to release a new semi-custodial wallet that eliminates one major risk from DeFi — if you lose your seed phrase, Coinbase can restore your wallet for you.
Semi-custodial DeFi is not the fully self-sovereign alternative to traditional finance we were promised, but I’d argue that promise was always more aspirational than reality, anyway.
Because here is another lesson learned from my Terra wallet blunder: Crypto is not the same as a bearer asset like gold or physical share certificates — the thing in crypto you self-custody is merely your private key.
My stranded LUNA is still visible on the Terra blockchain, for example, which made me realize I was never in possession of that (now worthless) asset. The only thing I ever took possession of was the private key to control it.
If that sounds like a distinction without a difference, consider if you own USDC, and the government puts your public address on a blacklist, well, you no longer own USDC in any normal sense of ownership — Circle can prevent you from moving your asset.
That’s not a complaint — it’s important DeFi has a stablecoin the government can get comfortable with. It’s just an illustration of the fact that you cannot truly self-custody your crypto assets.
In rare cases, your claim to those assets could also be invalidated if a community chooses to take them away from you, as was recently the case with JUNO.
And if your crypto is on a blockchain susceptible to 51% attacks, like BitcoinSV, the chain could in theory be rewound and re-run in order to dispossess you of it.
These are admittedly extreme examples, but the point is simply that you are never actually in possession of your crypto assets.
Which makes a semi-custodial wallet seem like not much of a compromise to me.
Easier, Safer DeFi
Coinbase’s new wallet promises to de-risk the DeFi user experience in other ways, as well:
Coinbase will offer free, human-readable ENS addresses, removing the copy/paste risk that has gotten me more than once.
An in-wallet browser will lower the risk of connecting to scam websites.
And users will be able to KYC themselves to DeFi dApps without submitting any personal information.
Of course, it’s not only Coinbase that is working on the DeFi UX:
Ledger, for example,announced at Permissionless a browser extension that holds the great promise of getting me to finally do something with one of the three hardware wallets I own.
In addition to simplifying the cold-storage experience, Ledger Connect will include a “Web3 check” that will “automatically warn you about potential security risks.”
I’m sure it won’t be able to warn you about every security risk in DeFi, but it’s another large step in the right direction.
And just in the nick of time, too.
The Federal Reserve released a survey yesterday showing that 12% of Americans had held or used cryptocurrency in 2021.
That prompted a lot of “it’s early” commentary on crypto Twitter, but it actually seems like a worryingly high number to me — crypto is still so janky and the user experience so poor that I’m sure many of those 12% will not be coming back for more in 2022.
Before many more people give crypto a try, we really need the UX to be significantly easier and safer.
For DeFi to go mainstream, the explainers need to require less explaining and the do-it-yourself learning needs to be less expensive.
After listening to the builders at Permissionless last week, I’m confident we will get there.
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