Kaizen in DeFi: How to Achieve Sustainability in the Long Run

Despite the fact DeFi is still in its emergent state, cryptocurrency operations offer many possibilities and scope of applications where these possibilities may be applied to. Employing technological advantages of the DeFi ecosystem can significantly improve both user behavior and user experience, acceptance of digital assets, and overall adoption of DeFi.

However, new opportunities carry risks.

Existing DeFi Challenges and Issues

Decentralized Finance, also referred to as “DeFi“, is a monetary system built on public blockchains and peer-to-peer protocols. Public blockchain, unlike private (that is governed by a single entity), is an open-source network.

Despite its transparency and permissionless, DeFi holds several risks:

• high transaction fees,
• high volatility,
• long confirmation time,
• smart contracts without defined rules for certain services,
• stuck transactions,
• dapps unintuitive user interface,
• complex barrier to enter the market,
• potentially vulnerable hot wallets (the keys are stored on the Internet),
• demand to manage on/off-ramps fiat fees (when you offer fiat money in return for cryptocurrency),
• transfer cryptoassets to various wallets, accounts, or protocols.

Along with that, users recognize pain points that could generate stress while trying to apprehend emergent technology and its ecosystem.

DeFi User Pain Points

Because of a rookie mistake, users often send great values to the wrong blockchain address. This pertains directly to the fact of how transactions work in blockchain: they simply cannot be recalled.

Further, there is no guarantee that a DeFi project can change the rules (sometimes with little to no warning) of how it is operated.

The unpredictable markets stand as another shortcoming, which holds an actual risk of an investor losing their money.

The following are commonly identified pain points users point out (according to the Consensys DeFi User Research report):

• Not knowing how to make the most of my money/crypto
• Constantly a new protocol to check out
• Keeping on top of price volatility
• Keeping on top of the best earning/borrowing rate
• Fees associated with moving my coins around
• Having to give too much of my information away to sign up, sometimes
• Fiat onramp; I have to move my coins several times to even earn interest into deciding what protocol to use

Another common issue with the DeFi industry is that sometimes “decentralized finance” isn’t as decentralized as it should be.

Custodial Wallets, Lending and Borrowing Services

A Custodial Wallet is a wallet in which the private keys are held by a third party.

Probably, the biggest disadvantage of the custodial cryptocurrency services is that they have an unconditional right to decide what to do with your funds. Moreover, in some cases you won’t gain access to your funds or any of the related services without proving your identity (the process known as a Know Your Customer procedure).

In the case of lending and borrowing services, overcollateralization may be seen as a key issue for decentralized financial services. That said, lenders, in order to insure their finds from being lost, are forced to set high collateral. This results into a situation where many lenders refuse to lend borrowers unless the latter can provide a large amount of assets up front, which reimburse initial expenses several times.

This experience contradicts one of the key philosophies of DeFi — to bank the unbanked. This discrepancy is only distancing users from the technology adoption rather than bringing them closer to it.

That’s why the business philosophy that lies behind Kaizen, disclosed herein, is seen as a proposed solution to the current DeFi unstable state of affairs.

Changes for the Better

A productivity expert Masaaki Imai first presented kaizen in his 1986 book Kaizen: The Key to Japan’s Competitive Success where he explained its basic concepts and implementation.

Kaizen requires more self-organization at the local level, more personal responsibility of all participants, more development of innovation.

Kaizen is a philosophy that pivots around methods, tools and processes that create lean manufacturing and quality management techniques.

From the Japanese organizational perspective, kaizen is viewed as any activity that puts emphasis on extending people (personal and professional) qualities. These qualities should provide benefits in both monetary and non-monetary terms.

Compared to the West definition of kaizen (that sees kaizen as a mechanical filing), Japanese interpretation treats kaizen as a continuous improvement, including a quality control.

Incorporating Quality into the Process

In the 1960s and 70s, a quality control system was introduced in Japan. It was based on the Total Quality Control (TQC) concept.

The TQC perceives a wide involvement of personnel at all levels in quality circles (QC). These quality clubs were mainly concerned with safety and productivity, and their activities were mainly aimed at improving the workplace.

Another point to understand how kaizen’s knowledge impacts business is transferred by process improvement. The process should go hand in hand with the introduction of innovations. This particular mix of improvement and innovations gives the best results.

But how to achieve such a technological synergy?

You can break it down to kaizen and innovation. In this case, kaizen means minor improvements in the course of the following workflow that do not change the usual run of things. Innovation, in turn, represents a fundamental transformation that alters the usual run of things and is a result of large investments in new technology and/or equipment.

The phrase “Incorporate quality into the process” was (and still is) relevant to Japan. The essence of most of the management methods, whether it’s productivity improvement, TQC activities or QC circles, can be summarized in one word: kaizen.

Such an approach equally amounts to the Kaizen.Finance concept — unlike many projects in the decentralized finances, KaizenFinance is already studying best practices and working to improve its processes in the field of Fintech.

The Kaizen Umbrella Concept

Yet, kaizen concept is not only about learning new methods and tools, but is a different form of communication. Set of methods and approaches that describe this philosophy known as the kaizen umbrella concept covers Japanese management practices. Some of them are:

• customer orientation,
• total quality control,
• suggestion system,
• automation,
• quality improvement,
• just-in-time,
• zero defects,
• productivity improvement,
• new-product development.

Unlike kaizen, DeFi is a relatively new concept. Nonetheless, the kaizen practices can complement and enhance the perception of decentralized finance.

The DeFi Umbrella Concept

The DeFi concept pursues the goal — provide quality financial services and make them available to all. For this, the continuous improvement of the DeFi products and services should:

• be gradual, infinite, and provide continuous engagement for its users;
• be dedicated to user’s needs and make them feel confident that a project can offer continuous support for a long period of time;
• comprehend the fact that the ease-of-use aspect of the product is important for fast user onboarding and continued user satisfaction;
• educate users about how products to improve long-term user adoption;
• provide active communication and available support can highly expand user’s trust in crypto and DeFi products and services as well;
• provide regular updates to promote loyalty to the service.

At the same time, automation in the fee calculation and associated earnings may provide benefits welcomed by newer users.

Conclusion

Decentralized Finance on public blockchains is one of the most interesting and quickly growing technological innovations to happen in financial services.

Understanding the risk factors associated with crypto has the potential to develop long term users who will advocate for greater DeFi adoption, as opposed to users that experience financial loss from a single interaction with a poorly understood DeFi product.

To maximize DeFi adoption, it is imperative to understand how existing users behave and how their experiences can be optimized. After all, it is the participants who make sustainable growth and define successfulness of the project in the long run.