1.2 Opportunities and Challenges in the DeFi Ecosystem

In 2023, the total value locked (TVL) in decentralized finance reached a peak of $180 billion. However, DeFi's growth is hindered by several obstacles:

• Technical Complexity: Users must manage wallets, interact with smart contracts, and engage in liquidity mining. The average failure rate for on-chain transactions is around 12%.

• Concentrated Risk Exposure: In 2022, the average loss per DeFi protocol due to hacks reached $3.2 million. Effective risk contagion mechanisms—such as those needed to prevent incidents like the LUNA-UST collapse—are still lacking.

• High Yield Volatility: Annualized returns from mainstream liquidity mining range wildly from 20% to 200%, with a lack of stable investment products suitable for institutional players.

• Regulatory Uncertainty: The U.S. SEC classifies most DeFi protocols as unregistered securities, making it difficult for traditional financial institutions to participate in compliance.