The writer is Kevin Kim, co-founder of Gossamer on the DeFi platform. Before setting up to build Gossamer, the team interviewed 21 cryptocurrency users, hoping to understand their financial habits and their views on DeFi. After the 21 users were all 85, this group has a high degree of acceptance of new things. Before the economic crisis, they are willing to accept cryptocurrency investment. In the interview, they revealed their investment habits and their understanding of the advantages and disadvantages of DeFi products.
In the past few months, we have been working hard to build and iterate the alpha version of Gossamer, an investment platform based on Ethereum for consumers who are proficient in financial knowledge. We hope to provide investors with a simple and easy way to earn money through decentralized finance (DeFi). We've started integrating Compound to help users easily earn an annual interest rate of 7% to 10%, but there are some exciting new features under development and plans to launch our beta version soon. In the near future, we will share more information about ourselves and how we can integrate the following points into Gossamer.
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When Gossamer was just an idea, we interviewed 21 randomly selected cryptocurrency users to understand their financial habits and perceptions of DeFi. We are no stranger to Ethereum's user experience issues – I have discussed this issue on Devcon before. In this spirit, we bring together our main findings and share with the community.
In July 2019, we conducted 21 user interviews, about 45 minutes each time. We present a variety of closed and open questions about their traditional investment habits, their understanding of the Ethereum ecosystem, and their thoughts on all aspects of DeFi products.
1. General investment habits
Financial technology products (financial robots, Robinhood) are the most popular investment tools.
We are not surprised by the popularity of financial robots. Millennials with disposable income and technology are the target audience for such tools.
For younger participants (age 25 and under), cryptocurrency is their first real investment.
This group of people grew up during the financial crisis, and when the cryptocurrency market began to take off, they were still in college. These participants felt that they did not have enough savings to make traditional investments valuable, and they were attracted to cryptocurrency investments for potentially high returns. Some younger participants admit that after investing in cryptocurrencies, they will seriously consider more “responsible” investments, such as robot consultants or individual stocks.
“My bank account is only a few hundred dollars. 2% of the annual income is not worth opening a new account, but the return of the cryptocurrency is crazy, so I immediately got involved.” (Respondent: 23 years old, Male, marketing post)
“After I lost money on the cryptocurrency, I realized that I should try a less risky investment. This gave me a wake-up call and made me more responsible.” (Respondent: 24 years old, male, engineer) 2. Understanding of the Ethereum ecosystem
Research on cryptocurrency speculation has fueled a small part of the Ethereum ecosystem.
Because most people are exposed to cryptocurrencies in speculative form, Tether is significantly more popular than USDC and Dai. People have seen it in exchanges or news reports like the currency.
When discussing blockchain lending, DeFi protocols like MakerDAO and Compound have little visibility among respondents, but Nexo and ETHLend are each mentioned once, but only because the tokens they buy are speculative – these The product has never been used.
Of the four people who have heard of MetaMask, only two have used it. They used it to play the encrypted cat only during the boom period, and later uninstalled it.
In each interview, we explained the benefits of the Compound protocol to the user in detail. We talked about some key aspects, such as high yields (7% to 10% for DAI), the use of stable currencies, excess guarantees for loans, and risk mitigation measures for agreements.
Earning revenue at Compound is a good way to outline the DeFi phenomenon, showing many advantages (cost savings, elimination of middlemen) and shortcomings (smart contract security, technical complexity). We put their ideas into what we think is applicable to the entire DeFi ecosystem.
3. What do ordinary consumers like about DeFi?
Not directly related to the stock market
Smart investors quickly realized that ecosystems like Compound are not directly related to stock market performance. This made them realize that DeFi is a way to diversify their portfolios, especially when financial robots, index funds and stocks account for a large proportion. Some also pointed out that earning 7%-10% of interest is valuable in an economic environment where global interest rates are declining.
In conversations, less savvy investors see this feature as a strong positive factor, even though they fail to realize it in advance.
“Most of my investment is in the stock market, and everyone is talking about the upcoming economic depression, which makes me a bit worried. This may help (my portfolio) diversify without having to take too much risk.” (Respondent: 27 years old, male, financial practitioner)
Higher return vs traditional investment
Respondents responded differently when providing some relevant data comparisons (7% of the historical average of stock market returns and 2% of high-yield savings accounts).
21 users responded positively after seeing the comparison numbers, and many people were pleasantly surprised. Even for those savvy traditional investors, Compound's interest rate is a useful reminder.
“Wow, I can earn 3-4 times more money than a high-yield savings account!” (Respondent: 33 years old, male, entrepreneur)
“I can earn the same benefits as the stock market, but don’t worry about all the ups and downs. It’s great.” (Respondent: 30 years old, male, marketing position) Remove the middleman of the bank
Many respondents liked the idea of DeFi removing the middleman of the bank. More importantly, however, this helps users better understand the sources of their higher returns. When users realize that no bank participation will bring them more benefits, they will understand immediately. This simple and powerful explanation made some people understand why Compound's interest rate is "unbelievably good."
“I have seen that banks have set a record for profits in 2018. 7% to 10% of annual yields are high, and kicking out banks is an additional subsidy.” (Respondents: 28 years old, female, BD)
“I like the Ethereum code to remove the bank. Now it makes sense – at first I thought it sounded too strong.” (Respondent: 28 years old, male, lawyer) Think of blockchain technology as "future"
Regardless of their background, almost all respondents who like DeFi say they believe in the long-term potential of blockchain technology. Some respondents who don't know much about the blockchain are still willing to believe that DeFi and Compound are the performance of this technology, because some experts they trust are optimistic about this.
“I believe in the long-term development of this technology, regardless of the price of cryptocurrencies and bitcoin, this is the future of the currency.” (Respondent: 24 years old, male, engineer)
“I think the blockchain will reform a lot of different industries, and many smart people I care about think so.” (Respondent: 32 years old, female, designer) 4. What do ordinary consumers think of DeFi?
Many of the questions that respondents encountered when using Compound focused on security and volatility. Although this is nothing new in the context of cryptocurrency, there are some special nuances for DeFi that we want to sort out.
Lack of centralized, responsible organization
For most participants, what they value most is the security of the funds. They don't care how to achieve this kind of security, whether it's a centralized or decentralized technology. A few people think that the characteristics of smart contract de-trusting have a positive impact on security, but for most people, smart contracts bring more problems.
On the other hand, respondents generally trust Coinbase, and their trust is almost completely higher than the smart contract or DeFi products they know. They believe that Coinbase is a well-known entity with public responsibility – their friends and family are using Coinbase.
"When I think about decentralization, I am worried that if something happens, no one will be responsible. I like Coinbase has a CEO and a section about us, and if something happens, someone will be responsible." : 30 years old, male, marketing position)
“Do I need to transfer my stable currency to an address outside of Coinbase? It’s a little scary – I believe Coinbase, they are a famous Silicon Valley company. But I don’t know who is doing something more experimental.” (Respondent: 32 years old, female, designer) Worried about being hacked
Many of our respondents share the same story: someone they know lost their money because the exchange or wallet was hacked. People who don't know much about technology tend to confuse all the money-losing events in the ecosystem (exchanges are hacked, ICO scams, smart contracts are hacked). The most frequently cited example is a hacking attack in May 2019. It is difficult for these people to assess the risk of a hacker like an ecosystem like Compound, and hope to get advice from trusted third parties on security.
Participants who know more about technology can analyze the security of smart contracts more specifically—they know that bugs often occur during normal development, and therefore do not trust smart contracts that hold a lot of value.
"I don't think password technology is 100% safe. Many Koreans think so. If there is an exchange that is mine, I put a lot of money in it, I feel unsafe, not to mention the service I don't know." ("Respondent: 26 years old, male, graduate student)
"I don't know much about smart contracts, but if the code can't be easily modified, and they hold a lot of money, it's very dangerous. If the currency can be hacked, anyone can be hacked." (Respondent: 32 years old , male, engineer) No insurance
Regarding the security of Compound, the most frequently asked question is "Is my funds insured?". Some users have raised this issue by comparing the proceeds of the Compound account with the savings account.
A few people who asked if Compound had insurance did take the initiative to recall that both Coinbase and Gemini had insurance, but could not describe the specific insurance details. We have not tried to explain the new trend of decentralized smart contract insurance. These respondents may not have a good impression of the concept of using smart contracts to insure other smart contracts.
“If there is a financial loss, is this company liable?” (Respondent: 28 years old, female, technical practitioner)
“I remember that Coin’s was recently attacked. If my funds are lost, can I enjoy FDIC (Federation Deposit Insurance) insurance or similar services?” (Respondents: 29 years old, male, technical practitioner) Stabilizing the volatility of coins (especially Dai)
After the interview, some of the more savvy respondents questioned some questions about the stability of the stable currency price. They are satisfied with the USDC's US dollar guarantee, but expressed concern about Dai. They are particularly worried about Dai's price volatility, fearing that it will use volatility, such as Ethereum, as a collateral, even if the volatility is not large.
“I am from South America, so I am particularly concerned about the risk of currency price changes. What is worrying is that Dai’s price changes so frequently, and it should be stable.” (Respondent: 33 years old, male, entrepreneur)
"I have heard of MakerDAO, but I don't know what they do. If I can get a safer and safer stable currency, then it seems unnecessary to rely on Dai. I care more about the stability of the currency than whether it is. Decentralization." (Respondent: 30 years old, male, marketing position)
Everything is still going on…
There are a lot of things to explain here, and we can't draw information from one conclusion. We've explored the various reactions of ordinary cryptocurrency users to DeFi, but there are still many subtle differences, especially in different audiences.