We talk a lot about the practical use cases of crypto, but if you ask your friends and family, chances are that 99% of them aren’t actually using any dapps.
And aside from the crypto casino, they probably don’t have any interest in it.
So where are the real users? Why aren’t all these “use cases” taking off?
Why do most dApps feel like ghost towns?
In this post, I’ll explore a few useful applications of crypto and explain why they aren’t actually being used by the masses just yet.
First, a quick look at the numbers.
According to DappRadar, there are around ~15M users interacting with dapps today.
Let’s assume that DappRadar has incomplete data, and there are really 5x more users = 75M active users. That’s still < 1% of the global population.
Not exactly “mass adoption”
Let’s look at some use cases and understand why they haven’t taken off yet.
Payments
Here’s why I believe crypto payments haven’t gone mainstream yet 👇
web2 solutions are good enough.
web2 solutions already exist for the masses that are “good enough”.
Card payments are convenient enough for retail or online purchases.
Venmo, PayPal, Zelle, Apple Pay, etc are good enough for day-to-day transfers to and from friends.
Transfers using web2 apps are also instant and the apps have interfaces that are super easy to use.
Legacy systems don’t accept crypto yet
You can’t make your mortgage payments using stablecoins (Not yet, at least).
This is partly because of unclear regulations. Over time, with more regulatory clarity, more legacy providers will get the confidence to start accepting or using crypto.
Tax Complications
Crypto payments are taxable events - which adds a lot of complication to your life.
Crypto debit cards are a great concept, but do I really want to have a taxable event that I have to report every time I buy a coffee? It’s an unnecessary complication with no added benefit.
Merchants don’t want to accept crypto.
Merchants stand to gain 2-3% by avoiding credit card transactions but the tax complications and regulatory uncertainty also make it impractical for them to accept crypto.
Also, way more people have credit cards than crypto, so merchants probably expect that most users would pay by card instead of using crypto anyway.
But what about other use cases? Like…
Tokenized Real-World Assets
There’s a lot of value in tokenizing real-world assets like Real Estate.
Tokenization makes assets investable, liquid, accessible, verifiable, and portable.
There are secondary benefits as well, like being able to plug tokenized assets into other smart contracts for lending, borrowing, etc.
Check out our video below to learn more - and subscribe to the channel for more animated explainers simplifying interesting crypto ideas!
But it’s INCREDIBLY difficult to tokenize these assets effectively.
For one thing, there are legal constraints. NFTs and tokens are not accepted as legal representations of real estate or other RWAs in most jurisdictions.
To get around this, most tokenized real estate projects today involve holding companies, with NFTs used to represent shares in the holding company.
But that’s a flawed model because ultimately, you have to trust the holding company.
The company could go bankrupt, the founders could finagle their company structure so your NFTs aren’t worth anything.
The free market could also lose faith in the NFTs, making them illiquid and worth nothing.
There are all kinds of risks there in addition to the regular risks associated with real estate investing.
Tokenized Stocks
There are a lot of benefits to tokenizing equities, but there are also similar problems as there are with tokenizing real estate.
The 2 models I’ve seen for tokenizing equities are:
Trust a centralized party to buy and sell real shares of stock when you buy and sell their tokens. This has the same problem as trusting the holding company for tokenized real estate.
Overcollateralized synthetic stocks The downsides here are:
You have to deposit more collateral than the amount of stock you wish to purchase, which makes it very inefficient. Example: Deposit $150 of collateral to mint $100 of a stock
You risk losing your collateral if the stock price goes up! It’s not a great option for long-term holders, and just generally only useful for some short-term bets or to hedge.
Lending and Borrowing
Loans can be either over-collateralized or under-collateralized.
Over-collateralized loans require you to deposit more collateral than the amount you want to borrow.
So to borrow $100, you might need to deposit $150 worth of collateral (just like overcollateralized synthetic stocks)
This makes over-collateralized loans very inefficient, and only useful for a few purposes.
This probably isn’t what you had in mind when you heard the word “loan”.
Most people who want or need loans aren’t looking for overcollateralized loans.
Under-collateralized loans are more like traditional loans from a bank. You want to borrow $100, but you might not be giving any kind of security deposit or collateral.
But if wallets are anonymous, users could just run away with the funds.
So you need some kind of identity and credit verification system just like in TradFi.
Goldfinch uses centralized intermediaries like banks and fintech companies to do credit assessments and distribute funds to borrowers.
TrueFi lends primarily to crypto-native institutions.
For example, this is a $10M loan given out to Bastion Trading for 180 days at an APY of 8.8%.
But this isn’t exactly decentralized.
“An application is only as decentralized as its most centralized layer”. - @alliancedao
And this kind of borrowing is not really helping to drive adoption from the masses.
The lending use case has some merit since anyone can deposit to DeFi lending pools and earn good interest backed by real loans but it’s certainly not enough for mass adoption.
Gaming
Many don’t understand why gaming should have anything to do with crypto. I’ll deep-dive into this in the future as it deserved a detailed analysis.
The gist of it is this:
Crypto & NFTs provide a way to create in-game assets that are unique, tradeable, valuable, useful, portable and integrated into a broader gaming ecosystem.
But at present, the crypto gaming sector is looking quite bleak.
Most people playing crypto games are only doing so primarily because they can “play-to-earn”.
Now that rewards have dried up in the bear market, most games that raised tens of millions of $ in the bull market barely have a few thousand active users today.
Crypto + Gaming is a great concept, but it should be Gaming + Crypto.
Building a game that people enjoy playing should be priority #1. For games, crypto is just a technology to facilitate transactions and marketplaces for in-game items.
Building games that people actually enjoy requires massive capital and engineering effort – and there’s a very long lead time for successful top-tier games.
I suspect it’ll take a few years to see the crypto gaming ecosystem develop into something real.
Conclusion: Why dApps aren’t seeing rapid adoption
I think the reasons for slow adoption can largely be broken down into:
Regulatory uncertainty
Not solving a problem
Incremental improvements aren’t enough to change behavior
Too complicated to use
So, how and when will real users start using crypto?
Miles Deutscher puts it really well.
“Mass adoption will only occur when dAPPs are created that retail actually WANTS to use. … Protocols need to have an inherent benefit TO users via utilising blockchain.”
Some use cases that I think have a good shot at facilitating mass adoption: Crowdfunding, NFT domains, NFT ticketing, gambling, gaming, cross-border payments, …
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