The $46 Billion D'apps Market Has Huge Obstacles To Overcome If We're Ever to See Mass Adoption

The decentralized application (d’apps) market is estimated to be somewhere between $46 billion and $59 billion, with a growth rate of around 10%. By any measure, this sure looks like a growth market, and in the blockchain space, d’apps creators represent a whole host of new cryptocurrency investment options.

However, this blockchain product line – which is focused on decentralized finance (DeFi) primarily – has no serious consumer base. Ask a person on the No. 6 train in Manhattan if they use a decentralized app. Chances are, they will have no idea what you are talking about, and you might need a Master's degree in computer science and another one in English to explain it to them.

When asked to gauge whether d’apps were ready for prime time on a scale of 1 to 10, Ran Hammer, Vice President of Business Development at Orbs ORBS/USD put it at a four.

“The largest setback we see is the user interface and user experience. When a user onboards Web3, they are bombarded with warning messages on MetaMask, or any self-custody wallet for that matter, to store their private key safely, or else they risk a total loss of all funds,” Hammer said. “Can you imagine registering for a bank account and the teller informing you that if you lose your password, you will lose all your money, too? From there they get another warning not to send x fund to y, and to triple, double, and quadruple check wallet address because with one wrong character, the funds could be lost forever.”

Blockchain technologies, sometimes referred to as Web3, (though not a perfect description), are still learning to crawl. Despite a good decade into development of these products, the entire sector is known more as a cryptocurrency speculator casino than it is as a place full of software engineers developing new ways to conduct business and pay for services online. 

Large-scale adoption depends on building use cases that users care about and delivering smooth experiences.  We are not there yet.

Some of the biggest market players in this space that are investable include:

Compound Labs COMP/USD: -22%*

Hashflow HFT/USD: -44.12%

Uniswap UNI/USD: -14.11%

*12-month declines as of July 30.

By comparison, Bitcoin BTC/USD is up over 140% over the same 12-month period ending July 30. And for those who want cryptocurrency but don’t want to go through opening a cryptocurrency trading account on places like Gemini, the Grayscale Bitcoin Trust ETF GBTC is up 160%.

Investors are better off there. But those with a high-risk appetite will still want to try their luck in the d’apps world.

Hammer said that one of the bigger problems in this segment of the blockchain economy is that layer one systems like Bitcoin, Ethereum ETH/USD and Solana SOL/USD and some layer two blockchain platforms like Polygon MATIC/USD and Arbitrum ARB/USD require you to hold their native tokens in order to send transactions on their blockchain.

“This remains a significant blocker to adoption, and it confuses people especially when you start adding in different address types, and when it requires another extension for wallets, etcetera,” Hammer said.

The overwhelming majority of protocols don’t require you to hold their token to be able to use them. UniSwap does not, for instance. “You can freely swap, provide liquidity, and do any other permitted operations on their exchange without needing to ever interact with their token, which is governance-based. This holds true for lending, staking, insurance, prediction markets,  and many other such cases.”

Subsquid (SQD), a Web3 data company, has attracted venture capital from New York-based Blockchange Ventures and San Francisco-based Hypersphere Ventures to try and make d’apps run more smoothly in the Web3 corner of cyberspace.

“All d’Apps require a certain amount of onchain data, and we make it easier to access that data at scale, fast, cost-effectively, and across multiple chains,” said Dmitry Zhelezov, co-founder of Subsquid. They work with GoogleCloud’s Big Query program for data analytics.

“We are trying to be a solution so decentralized apps do not stall, and improve user experience,” Zhelezov said.

One of Hypersphere’s seed capital investments is the Web3 startup called the Gear Protocol. They created the Vara Network for online payments done via smart contracts on a blockchain. Vara would allow users to avoid fees, or the technical details and warnings mentioned earlier. It marries Web3 d’apps with traditional app-style use, so users don’t need to worry about having tokens to use it, or special accounts, or storing long password keys.

Still, consumers aren’t as interested in d’apps mainly because they are still on the traditional web and not on the new web currently being built. But high-risk digital asset investors are.

Most d’apps are for DeFi and the DeFi sector continues to draw substantial investments, with a focus on products for decentralized lending, borrowing, and yield farming – which is the crypto world’s version of fixed income, sort of.

Platforms like Uniswap and Compound are big players here, geared at building decentralized alternatives to traditional finance.

Fortune Business Insights wrote in a report dated July 15 that DeFi operates in a regulatory gray area. Uncertainties of laws and rules could result in surprising compliance requirements or restrict certain activities “which could hamper market growth.”

Developers have two big complaints, said Hammer. “The first goes without saying: security vulnerabilities. According to Chainalysis, over $1.7 billion in cryptocurrencies were stolen in 2023, and it remains a current issue that protocols constantly work to mitigate in an effort to reduce counter-party risk.”

*The writer of this article owns Bitcoin.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.