While the crypto industry navigates the impact of the banking crisis, prominent investors are doubling down on backing decentralized finance (DeFi) infrastructure. From crypto native venture capital firms to traditional finance heavyweights, investment in DeFi, including compliance providers and exchanges, remains a bright spot following the collapse of FTX.
DeFi - the catch-all term for trading, lending, earning interest and more via a public blockchain that doesn’t require third parties – is still very much in its early days. This emerging corner of the crypto market is receiving increased attention from many because it has yet to receive the same level of scrutiny from policymakers. Yet the current backdrop presents an immense opportunity as new entrants have the chance to build trust with potential investors who are under pressure to enhance their due diligence efforts, and with regulators, who are taking a hard look at crypto broadly in the wake of several high-profile bankruptcies and their own pledges to enhance protection for retail customers.
According to the 2023 Edelman Trust Barometer, which recently surveyed more than 32,000 respondents across 28 countries, crypto is by far the least trusted of financial services subsectors.
Within this backdrop, is it critical that DeFi firms, which have the potential to accelerate their growth prospects, take a more measured approach to communicating with external stakeholders.
Below are recommended strategies these firms can take to enhance their reputation and credibility during this period of uncertainty and opportunity:
- Know your audience – It’s important to have a clear understanding of who you are looking to reach with any communications and what messaging will resonate best with them. It’s critical to take into consideration the audience’s level of understanding of the topic, their existing attitudes and beliefs.
Regulators, for example, have been vocal about the need for greater oversight of the crypto markets and are no doubt, keeping a close watch on the financial system broadly, given the recent turmoil. DeFi firms looking to influence the current regulatory regime should develop a communications strategy aimed at reaching specific lawmakers in Washington, taking into account their understanding of DeFi, their existing views of the segment (and crypto markets, more generally) and their recommendations on the level of compliance that should be required of companies in this space. Building an approach based on an in-depth, audience-based analysis can help ensure the messaging and associated distribution strategy are effective in achieving your communications and, ultimately, business objectives.
- Showcase the Distinctions Between DeFi and Centralized Finance (CeFi) – In CeFi, customers transact with digital asset firms who act as a central authority. Highlighting how DeFi is structurally and practically different is paramount. This outcome can be achieved by developing a content strategy that emphasizes the points of distinction here and within other segments of the crypto economy. It’s important to spotlight these differences without applying value (avoid statements such as, “DeFi is better than CeFi for the following reasons”). In contrast, focus on helping your key audiences come to their own conclusions. Develop messaging that makes it clear that crypto isn’t a monolithic industry that can be defined by the actions of any one player in the space.
- Be transparent – With trust in crypto lower than it’s ever been, it’s critical that DeFi firms be transparent with their stakeholders, whether it be their employees, customers, investors or regulators. Being visible, predictable and easily understood can help to forge trust among those you’re looking to influence.
For example, retail investors may need to be reminded of the safeguards a firm has implemented to protect them. Consistent reassurance that the appropriate measures are being taken to keep them safe should be delivered in ways that are accessible and easy for them to understand. If the messaging is buried in a footnote on a website, the likelihood it will be seen, and acknowledged, is minimal.
- Avoid echo chambers – The crypto community has developed a reputation for being rather insular, with market participants regularly engaging with one another via Discord, Telegram and Crypto Twitter. These channels – if used in isolation – can become an echo chamber, reinforcing existing beliefs or opinions held by those who are already steeped in the space. Given the need to reach institutional investors to establish business partnerships or regulators to shape the policymaking agenda, it’s important to utilize channels that you may not have previously considered.
For example. participating in events like Bloomberg’s Crypto Summit or Collision can raise a firm’s visibility amongst key business decisionmakers. Likewise, LinkedIn can be useful in forging relationships with the digital asset and/or blockchain leads at major financial institutions, many of which come from Wall Street, and have been active on the platform for some time. Leveraging these channels can help to ensure you’re able to reach your key audiences on the channels they value the most.
DeFi continues to attract great interest. However, to capitalize on this influx of investment and potential opportunities, companies from across the ecosystem will need to be disciplined in how they communicate. A deliberate approach to communications that starts with in-depth audience research and a messaging strategy focused on transparency will offer the best chance for success in helping companies achieve their core business objectives.
Brett Philbin, Executive Vice President in Edelman Smithfield’s Financial Services Practice
Rosie Gillam, Senior Vice President in Edelman Smithfield’s Financial Services Practice