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June 26, 2023

DeFi Needs to Do These 3 Things to Reach Its Full Potential and Impact the Masses | SKALE

Jack O'Holleran
Co-Founder & CEO

DeFi needs to start doing three things well. And guess what? Advanced derivatives. Curve trading, and flash loans are not on the the shortlist. Those are all sophisticated financial instruments that DeFi investors can use to creatively invest their crypto assets outside the traditional banking system.

Still, what about somebody who just wants to buy an item in their favorite Web3 game?

It’s tempting to over-complicate things. All too often, new DeFi projects seem fixated on offering novel (and increasingly complicated) financial services to a small niche of elite finance pros. 

But just because the blockchain is a novel technology doesn’t mean DeFi products have to be complex. To use a basketball analogy, the DeFi space is taking a lot of 3-pointers … and struggling to make its layups. And until we start making the layups, we won’t see DeFi impacting the masses. 

DeFi will start reaching its potential and impacting the lives of millions once it can easily help beginner users do these things well:

  1. Store digital assets safely
  2. Earn with digital assets securely
  3. Swap and trade digital assets effectively

None of these are advanced offerings. Yet they speak to the basic needs of the vast majority of crypto’s nearly 500 million users — needs that will only become even more important as the space matures to include billions worldwide. 

In that light, let’s take a step back to consider how DeFi can serve these basic needs.

1. Storing Digital Assets Safely

On a broad level, DeFi needs to help you bank online in a trusted way. 

This is particularly critical with a fully digital asset class, such as cryptocurrencies or non-fungible tokens, where users don’t have the option to hold their cash in a physical form.

And it’s become even more important after the closure of Silvergate and Silicon Valley Bank, two banks that were more supportive of crypto projects and currencies.

When most people deposit money in a bank, they expect that money to be available to them at a moment’s notice, with, at most, a marginal cost of storing it or a negligible fee for moving it later. 

The fractional reserve banking system offers a version of this — or at least the mirage of security, since that money is actually being reinvested to get the bank higher returns, and may not be available if there is a bank run or other liquidity-reducing event.

DeFi protocols can offer simple storage of digital assets, and potentially even more secure storage, since they do not face the same profit demands that traditional financial institutions do, with less pressure to take risks while reinvesting depositor funds. 

Offering safe storage of digital assets, in a way that is easy, quick, and simple, will go a long way to creating a DeFi space that is ready for mass adoption

2. Earn With Digital Assets Securely

In the traditional system, financial institutions can secure relatively certain gains by investing in government bonds. The presence of reliable, secure returns helps banks guarantee a return for depositors and provides general stability to the entire ecosystem.

These centralized earning options don’t need to promise outlandish returns, as Terra did (before its collapse, those who deposited the UST stablecoin into the Anchor Protocol were promised 19.45% returns).

Instead, DeFi builders should look to sufficiently decentralized and balanced examples like Aave and Compound, lending protocols that offer lower returns but more security for long-term investors.

3. Swapping and Trading Effectively

Go to a coffee shop in your neighborhood, pay in your local currency, and the transaction is simple. Go on vacation, buy coffee in another country, and it gets slightly more complicated.

You’ll need to switch your native currency for foreign currencies, either letting your credit card or bank handle the transaction and charge you for it, or carrying physical cash — and if you’re anything like me, you’ll soon have loose change from dozens of countries rattling around in your backpack.

Maybe that process is manageable in the physical world, where 10 to 20 global currencies are regularly traded or used, and the average person isn’t likely to use more than one or two on a daily basis. However, in the web3 world, where thousands of competing cryptocurrencies and digital assets serve different needs online, things can quickly get messy. 

The ability to use and swap these digital assets in a cost-effective, agile way is essential to creating a more robust DeFi ecosystem, from helping gamers swap ETH for in-game digital assets to helping investors buy NFTs on their favorite exchange.

To this end, many blockchain exchanges, chains or apps will focus on raising their TVL (total value locked). It’s an important metric for reducing slippage when trading one asset for another, but those who over-emphasize TVL risk missing the point — and, yes, you do need high TVL to secure large trades.

However, you don’t need $100 million in TVL to allow people to swap $10, $20, $50 worth of crypto in a series of micro-transactions. The point: Right now, you can start building DeFi products that make it easier to move virtual assets across the web3 ecosystem, even without building hundreds of millions in TVL first.

In the coming months, more DeFi projects are slated to call SKALE home, using our modular architecture, no gas fees, and the Metaport Bridge to more easily swap cryptocurrencies and move digital assets around.

We’re not just interested in growing the DeFi architecture here on SKALE though. We want to enable a whole global economy of applications that support web3 users and purposes. And in order to do that, we need a robust DeFi ecosystem that grows across all chains that see significant uses in the space. 

If you have questions about how to build DeFi products capable of scaling to serve the needs of as many users as possible, tweet me at @jackoholleran or reach out to our team.


SKALE is the world's fastest blockchain, designed for fast, secure, user-centric Ethereum scaling. SKALE chains offer zero gas fees to end-users and have advanced features such as on-chain file storage, interchain messaging, zero-cost minting, ML/AI smart contracts, and enhanced security features. 

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