Dappness

DeFi Protocols Shouldn't Need Consumer Apps

DeFi protocols should focus on infrastructure over consumer products to power the next generation of financial applications.

By Gareth on 7th Feb, 2025

You know how Stripe got started, right? Imagine if instead of focusing on getting devs to take advantage of their payments infrastructure, they decided to build their own online store or SaaS product to show off their tech. Well that's exactly what many DeFi protocols are doing right now...

Here's the thing - DeFi is even more foundational than Stripe. While Stripe builds developer tools to sell products and subscriptions online, DeFi protocols are creating the basic building blocks for an entirely new financial system. It's like being VISA while also trying to run your own consumer bank. Sure, you could do both, but you'd end up competing with all the banks that could be using your payment network, undermining your own infrastructure play.

Ok ok there is nuance and caveats here. I know.

A lot of DeFi protocols are building consumer apps and competing on making the best developer experience, but long-term it's dumb.

Your grandmother is never going to directly use a DeFi protocol. (If she does, congrats! You've got yourself a rare degen granny.) The future of DeFi isn't direct consumer interaction. Instead, imagine this stack:

  1. Your average person uses a friendly neo-bank app to manage their finances.
  2. That app uses APIs to access various financial services.
  3. Those APIs use aggregator services to find the best rates/deals.
  4. Finally, deep deep down, DeFi protocols power everything behind the scenes.

That's right, DeFi protocols will be at least 3 or 4 levels down the stack from the consumer.

Uniswap are building as if they're a consumer product, not low level infrastructure. tbh they're doing both. They have the resources to do both. But then it's a question of who are they competing against? If they try to be infra and consumer:

  1. When they're competing against other popular consumer products, those products are going to be forced to use Uniswap's competitors infra. So then Uni's infra market share gets eroded, which makes their infra less effective, which makes their consumer experience worse.
  2. When they're competing agains other infra (DeFi - AMM) protocols they may lose because they're too focused on consumer. They're marketing is sending mixed messages which leads to brand confusion. Meanwhile the infra competitors who know exactly what they are, are building products and presenting themselves effectively to build the better long term relationship with their customers, and ultimately win?

Balancer are building as if they're providing infrastructure. I bring up Balancer here because I'm familiar with the protocol and the strategy (having worked at Balancer for 4+ years). So I'm biased, but also Balancer is not 'winning' against Uniswap at this point and may never win. However, it is a useful comparison because Balancer at least recognises to some extent what it is.

Low level financial (liquidity) infrastructure.

Recognising what it is helps direct it's efforts more effectively to winning that game. For Balancer that's getting the next level of the stack to build financial tools and products on top of Balancer's protocol. It's not waisting much if any trying to win as a consumer product. Other than making the liquidity available through consumer distribution channels like DEX aggregators.

Even DEX aggregators like 1inch aren't really consumer products when you think about it. Regular people don't swap tokens - they just want to send money, earn interest, or get a loan.

So what's DeFi going to look like in 10 years? You won't be thinking about different chains or L2s. You'll just have your assets and be able to do things with them, probably within 1-2 apps on your phone. Chain abstraction is coming (though how exactly it'll happen is a topic for another day).

The key lesson here?

DeFi protocols should take a page from early Stripe's playbook. Focus on building fantastic admin tools and SDKs that make it a joy to build on top of your protocol. That's how you win the long game.

The future of DeFi isn't about having the prettiest consumer interface - it's about building rock-solid infrastructure that powers the next generation of financial applications. And the sooner protocols realize this, the better off we'll all be.