Problems in Web3 & DeFi

In the realm of Web3, DeFi, and memecoins, what should be a sophisticated financial network often resembles a digital game of hot potatoes. Turtle is dedicated to tackling the obstacles that impede sustainable growth and compromise the future of Web3. Key issues include:

Protocol Liquidity Demand: The demand for liquidity amongst protocols is greater than the market's ability to meet that demand. As a result, many new protocols are unable to access sufficient liquidity for their application to work on an economic scale.

Inefficient market structures and lack of access to off-chain deals lead to wide spreads and illiquid markets

Web3 Security: Rug pulls, smart contract breaches and the costs and difficulty of conducting due diligence makes it extremely risky for professional LPs to try out new protocols, therefore, major institutions, and whales often overlook smart contract audits and focus only on established Dapps. This selective approach restricts liquidity in Web3. Moreover, conflicts of interest in audit processes undermine the security and trust in DeFi protocols, heightening the risk of breaches. Additionally, insufficient investment in security exposes liquidity providers (LPs) to high levels of counterparty risk, resulting in frequent and underreported hacks.

Risk-Adjusted Returns: The ecosystem faces challenges related to returns and yields. LPs are exposed to unacceptable levels of risk, hindering ecosystem adoption and growth. Low liquidity utilization and high counterparty risks further discourage potential LPs, slowing the organic expansion of DeFi and resulting in negative real yields.

Liquidity and User Fragmentation: Currently, user acquisition and protocol onboarding face significant friction, highlighting the urgent need for streamlined solutions to enhance liquidity accessibility and reduce fragmentation within Web3.

Lack of Transparency: The ecosystem suffers with transparency and trust issues. The opacity surrounding backroom VC and liquidity deals, risks, rewards, and protocol operations undermines trust and impedes informed decision-making. Emerging protocols face a trust deficit and struggle to establish credibility, which increases their cost of capital, hinders their ability to attract and retain liquidity, and stifles innovation.

User Monetization: Most wallets, dashboard, aggregators and other tool and infrastructure projects struggle to monetize their user activities

Inefficient Emission Expenditure: Misaligned incentives result in continuous token dumping which deters longer term liquidity relationshops and sustainable liquidity from the market

Forkable value proposition: A lack of unforkable value propositions makes protocols easy to vampire attack, causing liquidity and mercenary capital to bounce from one protocol to another, preventing the formation of mature protocols across the Web3 stack.

All these problems trigger a negative flywheel effect, where decreased LP involvement leads to less liquidity, which in turn results in a deteriorating user experience (UX) and reduced user activity