DeFi must go back to its P2P roots to gain mass adoption

Opinion by: Jean Rausis, co-founder of SmarDex

Decentralized finance (DeFi) began with a clear vision: to enable a global, permissionless financial system built on peer-to-peer (P2P) transactions, free from the constraints of traditional finance (TradFi). 

Early decentralized lending platforms embraced that vision by connecting lenders and borrowers directly, allowing them to negotiate their terms without TradFi’s rigidities. 

Unfortunately, over time, most of these DeFi protocols drifted away from this ethos, abandoning true P2P interactions instead of relying on liquidity pools, external price oracles and heavily automated market makers (AMMs). 

These structures have unlocked liquidity, but at the cost of user control, transparency and exposure to so-called “oracles” that can be centrally overridden. Today’s users are boxed into preexisting liquidity pools, often with little say over which collateral assets they can use or what risk profiles they want to take. 

Worse still, even the so-called DeFi leaders don’t follow the most basic principles of decentralization. The recent Hyperliquid exchange exploit made that painfully clear when the platform broke a major taboo by manipulating its oracle’s value. In the fallout of the exploit, its total value locked (TVL) fell from $540 million to $150 million.

It seems clear that DeFi has lost its way. To move forward, it actually needs to go back to where it all began.

The P2P promise

When DeFi first captured mainstream attention, P2P lending was its bedrock. Rather than parking assets in a bank or centralized exchange (CEX), people could lend directly to one another and agree on terms like collateral type and interest rate, all enforced by smart contracts. It was a breakthrough in transparency and trustlessness, but as demand for liquidity grew, its developers shifted toward pooled systems.

Liquidity pools aimed to streamline the lending process and improve capital efficiency, and they did. Borrowers gained instant access to funds, and lenders could earn passive yield without waiting to be manually matched.

While liquidity pools were undoubtedly groundbreaking, they still lack one of the most significant potential selling points of DeFi: the promise of a genuinely independent P2P system. Because in a pooled system, people could no longer set their own terms — they were, once again, constrained by a rigid system.

DeFi had strayed from the P2P ideals on which it was built. As newer DeFi protocols forget their origins, they’re also abandoning so many of the golden rules of decentralization that they risk becoming indistinguishable from the centralized systems they claim to subvert.

The decentralization illusion

The Hyperliquid incident is a case in point of how fragile the illusion of decentralization really is. While the exchange claimed to rely on an independent oracle, it had retained the authority to bypass the oracle’s pricing and used this power without too much hesitation.

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This forced intervention may have prevented further losses, but it shattered any confidence in the exchange’s decentralization. A decentralized platform that retroactively rewrites the rules and dictates prices simply cannot be considered truly decentralized. 

Oracles in DeFi should be sacred, permissionless and secured by a decentralized network of validators — not a tool for a pseudo-DeFi team to manipulate the market whenever things get tough. 

Incidents like this only reinforce public skepticism and make it tougher for credible builders to gain trust. Until DeFi starts living up to its name, it will continue to fall short of the ethos it loudly claims to represent.

Mass adoption demands a user-centric shift

This is why DeFi so desperately needs to return to its roots. P2P borrowing and lending, reimagined for a more modern and sophisticated system, offers that path ahead. A model where individuals negotiate fixed terms, choose their collateral, and eliminate reliance on fragile, centrally controlled oracle pricing is more transparent and more resilient. 

In this system, people can set their own rules, directly transact with one another in a truly permissionless, decentralized environment, and choose their own collateral. Whether selecting assets, lending and borrowing directly, or simply transacting without intermediaries, every DeFi user deserves access to an open, secure, user-driven system. This is the only way to achieve mass adoption, by restoring the control and transparency DeFi was built to deliver.

Such a model will appeal to crypto-native users and newcomers alike. And the good news is that the demand for DeFi hasn’t gone anywhere despite the rocky market. Recently, Aave, one of DeFi’s stalwarts, announced that its TVL reached an all-time high of $40 billion, while Uniswap became the first decentralized exchange (DEX) to hit $3 trillion in all-time trading volume.

These are not signs of a fading trend — they’re proof of a sector maturing under pressure. To convert that interest into lasting adoption that sticks globally, DeFi needs a better product choice. The future isn’t more complex — simplicity, flexibility and individuality — exactly what P2P was always meant to be.

Opinion by: Jean Rausis, co-founder of SmarDex.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.