- Defi fails to provide non-collateralized loans to the users.
- Cross-chain interoperability is risky; $2 billion scam.
Defi, also known as decentralized finance, provides financial services without including any intermediate. The Defi sector has increased its worth in the last few years. Defi provides services like lending and borrowing funds to users. Defi has all the qualities to be adopted massively in the mainstream, but it fails in some parts.
Limitations of Defi
The traditional banking system provides loans to the users by keeping their assets. Later on, brings the facility for the users to borrow money without collateralizing the assets. Defi hasn’t introduced this facility in his ecosystem. It provides loans to the user with collateralized assets.
Defi only allows Bitcoin and Ethereum as collateral assets.
Allowing Bitcoin and Ethereum as collateral assets, most people cannot use Defi because many own low-ranked cryptocurrencies. In this, Defi is lacking somewhere. According to Forcast
US $ 50 billion of capital is locked under low-ranked capital.
Cross-Chain Interoperability Risk
The concept of decentralized finance has expanded in the world of cryptocurrency, and different blockchain platform provides different services of Defi. Defi does not allow Cross-chain interoperability because of cross-chain bridge scams.
Cross Chain bridge is a decentralized application that allows different blockchain to transfer their assets from one blockchain to another. Chainalysis, an American software company and blockchain data platform provides businesses and government services to make critical decisions.
The Chainalysis report said that 13 cross-chain bridges were hacked this year, and cryptocurrency worth $ 2 billion has been stolen.
Conclusion
According to the information given, Defi needs to upgrade for better performance so that users can take benefit of the service and adopt it by businesses and the government. It takes a lot to build trust in the ecosystem, and because of this lack of services not adopted by Industries in their business.
Ethereum works on web2 technology and is introduced where it is lacking. Ethereum suffers blockchain trilemma and upgrades itself for improvement and better performance.
Defi will take years to develop, which will be more exciting for the users and the mass adoption.
Source: https://www.thecoinrepublic.com/2022/11/09/defi-needs-to-upgrade-in-the-future-for-mass-adoption/