Why has the institutional adoption of DeFi been slow?
Mass-scale adoption of DeFi by Banks and Fintechs is still extremely limited. As a result, end-users are not getting the best payment experience by speed, cost, and reliability. Some of the main reasons for the slow uptake include:
The cross-border payments ecosystem expanding, leading to a myriad of different protocols and platforms, across geographic regions and even specific payment corridors, each with its own unique features and functions. There is no one-size-fits-all. This fragmentation makes it difficult for institutions to identify which solutions are best for them and makes it more difficult and costly to integrate multiple solutions into their existing infrastructure.
Technical complexity and cost
Another factor is technical complexity. Many DeFi protocols are complex and require a high degree of technical expertise to use. This can be a barrier for institutions that do not have the in-house resources to develop this expertise, or the opportunity cost of assigning valuable technical resources to investigate and build payment rail integrations.
Finally, there is regulatory uncertainty. Because emerging DeFi payment rails are a new and evolving area, regulators are still working to understand it and develop a clear regulatory framework, and while all payment activity is currently captured in existing legislation, the overlap of using newer DeFi technology leaves potential users with more questions than answers. This uncertainty makes it difficult for institutions to start using DeFi protocols with confidence. (Read our post about upcoming cryptoasset regulations in the UK)
And adopting new payment technologies is complex
Firstly, an organisation can spend months of research, internal effort, and external consultation to assess options.
Secondly, there is a significant technical and commercial resource commitment required to implement a new payment rail. This time and cost can grow exponentially as new rails and platforms are considered.
Thirdly, multiple vendors and layers of procurement controls can add complexity and cost to the process.
Finally, further effort is required to detail the business case(s) for every new payment rail, which must be developed to justify the investment.
The DANIEL aggregator model
The way that DANIEL seeks to overcome these challenges is through the use of an aggregator model. The aggregator business model has come to disrupt every industry, enabled by the internet, from consumer-focused platforms such as Airbnb to B2B e-commerce payments providers such as Stripe.
In the cross-border cryptocurrency payments world, an aggregator is a platform that brings together multiple traditional (e.g., SWIFT), network (e.g., Visa Direct) and DeFi (e.g., Ripple, Stellar) payment rails and makes them available through a single interface. This makes it simpler and (much) faster for institutions to adopt emerging technologies, as they only need to integrate with one platform instead of multiple rails.
Additionally, this will fundamentally change the need for managing numerous supplier relationships, allowing payment institutions to instead focus on their customers' experience and improving their competitive position.
DANIEL is making DeFi adoption simple, fast, and future proof
We are building a single-vendor payments solution for traditional, network and DeFi rails that makes adoption fast and simple. We are bringing together the best-in-class protocols into one platform so that our partners can offer their end-users the best possible experience.
With relatively low capital outlay, you would be able to instantly access multiple DeFi rails and track payment and transaction metrics with our easy-to-use reporting dashboard. And because new rails and features are continuously added, you can always keep your DeFi infrastructure up to date via the single API integration without a need for further (re)development.
If you are interested in hearing more about how we are innovating in cross-border payments, please get in touch!