Uncovering the unique needs of Filecoin DeFi users

Why a crypto product team decided to do user research before writing any code, and what they learned.

In the fast-paced world of crypto, where innovation often outpaces understanding, user research can be a critical — but often overlooked — tool for building successful decentralized finance (DeFi) projects.

Glif, a project within the Filecoin ecosystem, conducted user research before writing any code for their new staking protocol, unearthing valuable insights which guided their purposeful building process.

In this article, we explore the significance of this approach, highlight its crucial role, and unveil some of the insights into the unique needs of Filecoin users.

The Filecoin challenge (and opportunity)

Filecoin, created by Protocol Labs (the people behind IPFS) is a blockchain that allows for distributed file storage. People “mining” Filecoin are known as Storage Providers — they store data, verify they’re doing so on the network, and get rewarded. But they have to stake FIL tokens as part of this process — this means that if they go offline or delete the data, they lose some of their stake. This consensus mechanism keeps the network running.

Until lately, the Flecoin network has suffered from a “Capital Efficiency” problem; FIL tokens are locked up in centralized exchanges or in cold wallets (users to date have had nothing better to do with their tokens!), whilst Storage Providers have had to borrow FIL through centralized lenders, which is costly.

The Filecoin Virtual Machine (the smart contract layer that allows for programmable applications as we see today on Ethereum) went live in March 2023, and now DeFi applications can solve this capital efficiency problem, by allowing for non-custodial interactions between holders and Storage Providers; token holders don’t have to trust a centralized entity with their funds, they can use DeFi protocols to earn rewards, and miners now have more borrowing options.

OpenUX co-founder Georgia Rakusen has been working with Glif for over a year; they’re a team that has been building in the Filecoin space for over 4 years, and has launched multiple Filecoin-related tools, including a native wallet and vital infrastructure. Glif has just launched their own DeFi protocol. And the results of their efforts have come from deeply understanding their users.

Conducting user research before writing code

Bringing on a User Researcher before writing any code is very unusual in the web3 space, and especially in DeFi, where the needs of users are thought to be well understood — token holders want a trusted place to earn yield on their funds, and borrowers want good terms and low collateral when taking out loans. Simple, right?

However, the Glif team had a hunch that building a copy-paste DeFi protocol as we see on other networks wasn’t the right approach. They suspected that Filecoin users are somewhat different from your average DeFi user. And user research confirmed this.

Since May 2022, Georgia has run multiple rounds of user research with >50 profiled study participants (roughly an equal mix of Filecoin holders and Storage Providers). She used mixed research methods for better triangulation of data, beginning with 1–1 discovery interviews and surveys, moving onto early concept testing, and finishing with in-depth user testing of the Glif landing page, app interfaces and journeys via prototypes.

The outcomes of this research have informed the design of the Glif DeFi protocol at a protocol level, not just the interface designs for end users. It’s allowed the team to

  • Design the protocol around the needs, pains and motivations of those end users

  • Design user journeys and interfaces that actually work for these audiences

  • Build faster, and with confidence

We’re very happy Glif sees the value in open sourcing some of the research insights, and we hope that sharing the following learnings proves an effective model for raising the bar for new DeFi projects for the whole Filecoin ecosystem (and beyond).

Learnings about Filecoin users

1: There’s a real problem to solve for both Storage Providers and Filecoin holders

We interviewed Filecoin Storage Providers of all sizes, from hobbyists to some of the world’s largest commercial setups. We learned that borrowing FIL to run their mining operation was the most expensive cost for all Storage Providers. Current options for borrowing FIL don’t work well for them; the loan terms aren’t favorable, the minimum borrow amounts are too high for some, and they must give over control of their miner to the centralized lender (a technical necessity). These Storage Providers want to grow their operations, and often have file storage space waiting to be put to use — but without the FIL they need to do this.

“If I can get the loan without [giving up] miner keys it would be great!”

“The difference with [CeFi lenders] is that I have to share my miner owner key, and I was not interested in doing that with them; that’s one of the reasons I’m not using them”

“Assuming that there are no catches, nothing would stop us from using [a DeFi option]… If this was available now, yeah let’s do it….”

For FIL token holders, especially those who are ethos-driven, they really want Filecoin to succeed and are looking for a way to put their FIL to work in a way that genuinely benefits the ecosystem.

“I first acquired FIL 18 months ago. I bought it on Kraken and then switched it to Gemini for the return. The rate was good but I could see Gemini was getting a lot from it. And I didn’t like that my money wasn’t secure with them. I felt worried about it disappearing tomorrow [due to recent CeFi concerns]… I have moved it to my cold wallet. It’s nice that it’s secure now, but there’s nothing I can do with my FIL*.”***

“I want to loan it out so that Storage Providers can make Filecoin a better protocol. I want the ecosystem to improve. I don’t plan on exchanging my FIL so why not put it to work?”

“What’s missing? Staking. The Filecoin Virtual Machine is adding the logic layer which will unlock staking and yield farming. I would love to stake.”

2: A Filecoin DeFi protocol needs to work for a less DeFi-savvy audience

Storage Providers have specialized knowledge around hardware and storage solutions. They’re into mining FIL because it aligns with their interests or makes for a financially sustainable business, and in many cases mining FIL is their only crypto activity. They tend to be more risk averse and less knowledgeable about the elements of web3 that require trust in decentralized services, and may have never participated in DeFi before.

Many FIL holders own a small amount of the token as part of their total crypto portfolio, but for larger holders often Filecoin is their only crypto holding. These types of people are use-case driven, with a strong belief in distributed file storage — but this means they’re unlikely to have tried out much in web3, or have familiarity with DeFi.

Some of our interview participants who were holding a large amount of FIL had never owned or used a web3 wallet. These users are not looking for maximum rewards, they want something easy to use that they can trust.

“I’ve done research into high yield lending on Ethereum and came to the conclusion it’s not for me. I believe in ‘get rich slow’ schemes!”

3: Supporting users to feel safe and understand risk should be a builder’s primary concern

Glif’s potential users are fearful of trying something new, more so than the typical web3-native DeFi user.

Storage Providers are eager for FIL and if the borrowing terms are good (and they maintain ownership of their miner) then they’re up for trying a new lender, but they have a lot of educational and onboarding needs.

Risk is felt more strongly for people lending out their FIL, and the lack of trust in decentralized services is a huge obstacle for adoption.

“My initial thought is how on earth could [a DeFi offering] be possible? It’s so good I almost don’t trust it. I don’t see how that could be financially viable for investors. I don’t trust it.”

“I want to experience it, seeing is believing.”

Trust is earned by:

  • Communicating risk and safety in a simple to understand way

  • Designing interfaces that speak to the user in their own terminology, and are easy to use.

  • Not hiding interfaces behind ‘connect wallet’ modals.

  • Creating ‘try before you buy’ demos, such as video tutorials, to demystify the entire process of using the product — and web3.

  • Having named individuals responsible for the project (not hiding behind anonymity)

  • Humanizing the engagement with potential users through social channels.

  • Surfacing the results of rigorous smart contract audits.

What next for Glif

As Glif continues to build its DeFi product and iteratively improve, they will be addressing all of these concerns, and many more rounds of user research are in the works to test the solutions they develop.

“Aside from knowing with certainty about the direction we were headed, injecting real user data into our development process enabled us to rapidly hone in on a specific solution. We think our approach demonstrates the value of getting out of our own web3 bubbles by researching with people outside of our network.” (Jon Schwartz, Glif)

In conclusion

Glif’s decision to prioritize user research over code, and the subsequent learnings, demonstrates the importance of understanding and addressing the specific needs of users from the outset, rather than building for an imagined “DeFi user.”

Embracing user research as a fundamental pillar of development raises the bar for new DeFi projects, leading to products that empower and serve the needs of real people.

Teams looking to launch DeFi projects in emergent ecosystems can get in touch with OpenUX to see how deeply understanding your users can support better decision-making, and more effective product development.

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