Finance

Now Is The Time to Think Beyond Crypto and Focus on DeFi and Web3

Morning Consult financial services analyst Charlotte Principato examines consumers’ current understanding of the crypto-related forces shaping the future of consumer financial services

Getty Images / Morning Consult artwork by Kelly Rice

Cryptocurrency is mainstream now, and research shows that ownership leads to awareness of crypto-adjacent movements like DeFi and Web3. Financial services leaders must begin to track these shifts as the concepts stand to further reshape consumers’ relationships to their finances and financial providers.

If you’re a financial services leader who is not actively thinking about how to incorporate cryptocurrency offerings into your strategy, you’re already too late. Not only that, but leaders need to think beyond just ownership and pay close attention to the natural progression between crypto, decentralized finance (DeFi) and Web3.

The future of consumers’ financial lives will consist of both traditional (centralized) and decentralized finance, and while consumers aren’t broadly aware of terms like DeFi and Web3 now, the groundwork is already being laid for a strong embrace of a decentralized future: the “decentralization” of their wallets through the use of multiple providers (including fintechs), through their search for ways to better manage their finances and, most importantly, the investment in cryptocurrencies.

It’s imperative that financial services leaders monitor traction of DeFi and Web3 ideals and innovations among U.S. consumers, or they risk losing business — not to competitors, but to other consumers, who serve as the new providers in a DeFi world.

Where crypto goes, DeFi and Web3 follow

Ninety-one percent of U.S. consumers have at least heard of cryptocurrency, and 19 percent say they own some. It’s no longer a fringe asset; financial services providers of all types — from JPMorgan Chase to Venmo — are already offering or are looking for ways to provide cryptocurrency services to customers. But in helping to popularize (or at least support) cryptocurrency adoption, these companies are also moving consumers closer to two ideas that threaten the primacy of their own consumer-provider relationships: DeFi and Web3.

Share of respondents who are aware of the following terms:

Survey conducted Feb. 16-23, 2022 among a representative sample of 4,404 U.S. adults, with unweighted margin of error of +/-1 percentage point.

Cryptocurrency owners are more than twice as likely as nonowners to have heard of decentralized finance and Web3. Notably, this relationship holds even when controlling for other demographic factors like age, gender, education, partisanship, race/ethnicity and income.

Cryptocurrency is not only the foundation upon which DeFi and Web3 are built, but is the gateway to familiarity with these concepts among consumers. As cryptocurrency adoption grows, increasing awareness of these ideas will follow.

But what are these concepts?

Both DeFi and Web3 stand to completely reshape the way consumers manage their finances. Digital assets and the blockchain technology they are built on are the basis for DeFi. DeFi is a form of finance that, as the name implies, does not require centralized intermediaries (such as banks) to operate because everything already exists on the blockchain. And Web3 is the next iteration of the internet that hosts DeFi and much more. DeFi and Web3 hold the promise of truly peer-to-peer financial services, such as lending, borrowing, payments and insurance.

Beyond crypto usage, consumers show a desire for financial change

While it’s too early to see the widespread adoption of DeFi and Web3, the time to track those shifts is now: Consumers are already decentralizing their own finances. Gone are the days of the “primary bank”; consumers not only use multiple banks, but supplement those services with fintechs and digital wallets, and manage all those financial relationships primarily through their smartphones.

This isn’t out of necessity, but preference: 66 percent of adults say they look for ways to manage their money better, and another 40 percent agree that there’s a lack of innovation in financial services. With the advent of smartphones and digital financial services, using products from multiple providers offers superior service and is more cost effective than working with just one.

Certainly, “decentralizing” one’s wallet through the use of multiple financial providers is not the same as participating in DeFi (which lacks intermediaries entirely), but it creates an environment in which it’s much easier for consumers to spread their wallets further. Industry leaders need to pay attention to these attitudinal and behavioral shifts — but, more importantly, they must continue to innovate product offerings that can rival those of their DeFi counterparts.

Morning Consult