10 Challenges DeFi Must Overcome in 2021

For the last few months, Decentralized Finance (DeFi) has been one of the hottest topics in the finance industry. Everyone is focused on the growth of decentralized finance applications, but one should also take care in thinking about the issues that the new industry will have to face and overcome to compete with the current centralized model.

Before we start looking into the current challenges that face DeFi, let’s briefly explain the concept behind it.

In contrast to the decentralization of money through Bitcoin, DeFi aims for a broader approach of generally decentralizing the traditional financial industry. The core of the initiative is to open traditional financial services to everyone, in providing a permissionless financial service ecosystem based on blockchain infrastructure.

Broadly speaking, DeFi is an ambitious attempt to decentralize core traditional financial use cases such as trading, lending, investment, wealth management, payment, and insurance on the blockchain.

Now, let’s discuss some of the biggest obstacles that DeFi is facing on its present-day level of development. These issues are current, but as time passes and development increases, many of them are likely to be solved. Here are the obstacles DeFi faces.

  1. Performance issue: Inherently, Blockchains are slower than traditional and centralized finance (CeFi) platforms. This issue also translates to the applications developed on them. This is why the DeFi developers should carefully consider these constricted elements and work on their products.

Conclusion

Regardless of all that the budding DeFi industry has and still has to accomplish, the final question is whether regulators will take steps to snuff it out. While the idea of a bank open to anyone in the world may appeal to crypto enthusiasts, it’s unlikely that the government shares the same view.

To fill the gap between theory and practice DeFi has yet to overcome its core roadblocks: Low liquidity, unintuitive UX and accessibility, capital inefficiency, hidden risks, and regulation. But like it or not, we are heading towards a new financial system that is more liberalized and decentralized than anything.

Despite the challenges, DeFi is barreling ahead into 2021 with the promise of overcoming them, serving up ambitious and impressive projects already.

Check out the Top Ten DeFi Projects to Watch in 2021.

Disclaimer: This article is informational and should not be used as investment advice. Please consult your financial advisor prior to participating in or investing in any blockchain.

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