The Great DeFi Dilemma: How stakeholders can navigate the uncertain waters of decentralised finance adoption: An explorative study

Abstract

This study explores the key challenges in the adoption process of Decentralised Finance (DeFi) technology and its implications for stakeholders, including bankers, users, developers, and regulators; tying in to a broader perspective of economic evolution. The data consist of over 20 semi-structured interviews with individuals among the different stakeholder groups, primarily in Sweden and the USA. The research identifies the main challenges, their impact on adoption, and potential strategies for addressing them. The findings reveal that regulatory uncertainty and technical issues are the primary challenges currently hindering DeFi adoption. From a legal perspective, the biggest difficulty is to create regulations that balance innovation and user security along with the need for international coordination. Banks are unwilling to integrate DeFi products into their offerings before there are clear regulations in place. Developers struggle with these uncertainties and face difficulties building legitimacy for their products, while users on the other hand are concerned with user friendliness and security. This study offers several strategies for stakeholders to address these challenges. Banks can choose to opt for an active or passive approach, either exploring options or imitating competitors' proven solutions. Users are more likely to adopt DeFi once regulations are in place or banks have implemented DeFi services into their products. Developers should collaborate with other stakeholders with the goal in building legitimacy, improve products, and foster security and education for users. Regulators need to work with the DeFi industry and other international regulators to create a consistent regulatory framework that balances innovation and security. This research concludes that the DeFi adoption process will be an ongoing, evolutionary journey involving collaboration among all stakeholder groups, aligning well with literature within evolutionary economics. This collaboration is crucial for ensuring that regulations, adoption, and focus areas also evolve in line with market developments in the future.