DeFi Sector Brief: Protocol Verticalization

Narratives and Trends

The predominant narratives and trends in DeFi are either related to established protocols expanding their footprints or new ecosystem-specific protocols introducing new mechanisms.

Verticalization

DeFi protocols are financial infrastructure at their core and not designed to be end-user products at the end of the day. To this effect, the front-ends or user experience layers that sit on top of the protocols are key determinants of adoption as they define both the consumer use case and their experience with crypto — both pivotal in the success of the underlying financial infrastructure (protocols).

Established protocols are realizing that in order to drive application usage and customer experiences, they must look to build vertically themselves. This is important for competitive reasons, as owning and defining the customer relationship provides pricing power, and for customer acquisition reasons, as the approachability and usability of cryptocurrency is perhaps a larger barrier to adoption than financial efficiency at this point.

Uniswap recently released an early version of its mobile wallet which is a vertical move to craft the end-user crypto experience in an approachable, friendly way that appeals to a wider set of users. Uniswap’s major barrier to growth, outside of U.S. policy opacity, is getting more users comfortable with using on-chain protocols, not squeezing more efficiency out of its DEX. The mobile app is a step in that direction.