Interview: DeFi doesn’t scale — yet: Syndicate explains why

DeFi decentralization has seen its golden age, but technical issues are pushing toward centralization, says Syndicate’s Will Papper.

Summary

• DeFi protocols still struggle in terms of performance, says Syndicate’s Will Papper.
• Uniswap V3, Curve, and Velodrome were the golden age of decentralized DeFi
• Institutional capital is flowing into the top 5 assets; everything else is suffering
• Stablecoins bring value on-chain, making them a key catalyst for DeFi growth

As more capital enters the crypto ecosystem, the question isn’t just how much, but where, and whether it’s reinforcing the very centralized structures DeFi sought to escape.

Will Papper, co-founder of Syndicate, spoke to crypto.news about the tension between decentralization and efficiency and why solving for both remains one of crypto’s most complicated problems.

Crypto.News: Can you share your perspective on the growth of DeFi over the past few years? Is the ecosystem maturing toward greater decentralization?

Will Papper: That’s a great question. I think DeFi evolves in cycles. Before 2020, centralized exchanges dominated the space, and DeFi as we know it today barely existed. There were early examples like EtherDelta and MakerDAO (MAKER), but overall, the landscape remained very centralized.

I view the period from 2022 through 2024 — depending on how you define it — as the golden age of decentralized DeFi. Uniswap V3 (UNI) brought significant capital efficiency. Curve offered robust liquidity for stablecoin swaps. Platforms like Velodrome and Aerodrome introduced mechanisms to incentivize liquidity directly. During this phase, decentralized exchanges began competing with centralized services on relatively equal footing.

However, things have shifted recently. Platforms like Hyperliquid (HYPE) and other “hyperexchanges” have effectively re-centralized parts of the ecosystem. Many are closed-source, operate partially off-chain, and interact with Ethereum (ETH) wallets through JSON-RPC. Because of that, wallet compatibility and validator sets may appear decentralized, but the reality is more complex. If a single party controls the codebase, they can unilaterally push updates, undermining decentralization.

The real challenge now is building systems that match the performance of centralized exchanges while maintaining decentralization. That’s what we’re working on, and I believe it’s possible. But today, we’re not there yet.

CN: From a technical standpoint, what will it take to achieve both high performance and decentralization in DeFi?

WP: Vertical scaling can help. Solana (SOL), for example, supports on-chain order books and can deliver good throughput. Ethereum is making progress too — initiatives like MegaETH and efforts from teams like Rise are promising.

Still, there’s a massive performance gap between centralized and decentralized order books. Centralized platforms achieve sub-millisecond order-cancellation latencies. In crypto, 200 milliseconds is considered fast — and even then, that’s best-case. This matters because latency directly affects profitability. If one participant can cancel in 2 milliseconds and another takes 200, the faster one will win on profitability and usage.

Horizontal scaling is also critical. First, it helps mitigate downtime risks. For example, Solana has experienced moments where regular users couldn’t submit transactions or had to rely on specific validators. Downtime directly impacts trading profitability — and we’ve seen the consequences, such as recent liquidations when exchanges couldn’t process orders fast enough.

Second, horizontal scaling allows for more flexible validation rules. If you’re scaling per application rather than running everything on a single chain, you can fine-tune performance to specific needs. For instance, some of our customers have asked about implementing priority cancellations, placing sequencers and validators in certain data centers to enable co-location, or separating fast sequencing from slower validation. This kind of tuning isn’t possible on a general-purpose chain.

I think we’ll see more platforms like Hyperliquid — highly tuned to specific use cases — because general-purpose chains, even ones as fast as Solana, won’t be able to match that level of performance.

CN: How do you define decentralization — and more specifically, community ownership? You touched on resilience earlier, but what are the concrete benefits for users, owners, and contributors?

WP: I define decentralization as a system where no single party can unilaterally change the rules of the network. That’s fundamental to security. If one entity can push a change without consent, they can also manipulate funds or undermine trust.

Take Hyperliquid as an example — even though the validator set is relatively decentralized, the project is closed-source. That means a single entity can push an update, and validators won’t even know what code they’re running. That’s a problem.

Community ownership, on the other hand, means that the community holds an economic stake in the network. Sometimes that’s direct fee sharing. Other times, it’s mechanisms like buy-and-burn, where revenue is used to reduce token supply. The key is that the community benefits directly from the network’s growth.

When you combine these two — decentralization and community ownership — you get a powerful model. If the network is decentralized, you don’t have to trust that fee sharing or token economics won’t change on a whim. In DeFi, we’ve seen cases where users expected revenue share, but it ended up going to front-end providers or other intermediaries. That breaks trust.

A system with real decentralization and economic alignment gives stakeholders a guaranteed, immutable claim on the value the network generates.

CN: We’ve seen increasing institutional involvement in DeFi. How do you see that affecting the direction of the ecosystem? Are we already seeing its impact, and what might it look like going forward?

WP: That depends on what kind of institutional involvement we’re talking about. We have traditional capital entering crypto use cases, like ETFs, holding crypto assets, or participating in yield farming. We also have traditional capital using crypto for traditional things. This includes stablecoin payments or real-world asset (RWA) tokenization.

Let’s start with the first: traditional capital entering crypto-native activities. This includes ETFs, hedge funds buying BTC or ETH, or institutions participating in yield strategies. I think this has already had a major market impact.

Anecdotally, I’ve noticed a huge disconnect in sentiment. People focused on major assets like BTC and ETH feel the market is healthy. But people active in smaller tokens often say it’s the worst market they’ve ever seen. When you dig into the charts, it becomes clear: only the top five non-stablecoin assets are doing well. Everything outside that range is struggling significantly.

That’s primarily because institutional capital flows into a very narrow slice of crypto — mainly BTC, ETH, and maybe a few others. They’re not buying into token #100 or #500. And because they often access the market through ETFs or custodial products, that capital never touches on-chain liquidity. It doesn’t flow down to the rest of the ecosystem.

So we’re seeing a bifurcation: large-cap tokens benefit from inflows, while the broader crypto economy suffers from liquidity and interest shortages.

CN: How about the second category, that of institutions using crypto for traditional financial activities?

WP: This is actually the area I’m most excited about. When institutions use crypto for traditional use cases — like stablecoin payments or real-world assets — it opens the door to meaningful adoption and efficiency.

Take stablecoin payments, for example. At Syndicate, we used stablecoins extensively in the early days. When we raised our initial funding in 2021, we operated entirely in stablecoins for the first six months. We paid contractors, vendors, and handled most operations on-chain. It was faster, cheaper, and in many ways, more efficient than traditional banking.

When companies begin holding and using stablecoins on-chain, they’re only a few small steps away from deeper crypto involvement. First, they might pay a few vendors in USDC. Then maybe they start paying their teams that way. Eventually, they might use on-chain capital to interact with crypto-native applications — for example, using a protocol token or minting NFTs.

Once your treasury is on-chain, everything else becomes easier. You’re already set up to explore the broader crypto ecosystem. So this type of institutional activity — bringing real capital on-chain — is what I believe creates the most sustainable long-term growth.

Counterintuitively, the ETF boom — in which institutions keep crypto exposure off-chain — has created asset price dislocations between the top five tokens and the rest. But when capital actually moves on-chain, it increases liquidity, deepens market engagement, and drives real ecosystem usage.

CN: Given there are around 150 crypto ETFs in the pipeline right now, do you think this expanded access will eventually extend to more altcoins?

WP: Yes — at a basic level, if investors can easily rotate between ETFs for assets like DOGE, ARB, or other altcoins, then access broadens. So, sure, having more token-specific ETFs could reduce the concentration of capital in just a handful of tokens.

But I still think something is missing in that model. I got into crypto back in 2013 because of ideals like decentralization and community ownership. My background was in mesh networking — letting devices communicate directly without centralized servers. Crypto was exciting because you could write a smart contract, deploy it, and it would run forever. That’s powerful.

If every crypto asset were mirrored in the stock market through ETFs, it might improve access, but it wouldn’t capture what makes this space fundamentally different. The more compelling scenario is where traditional capital actually moves on-chain — through stablecoins, RWAs, and native interaction with protocols — not just exposure via legacy infrastructure.

I’ll gladly take a world where more assets have ETFs. It’s better than nothing. But I hope we don’t stop there. Moving capital on-chain is what unlocks true ecosystem participation and innovation.

CN: Let’s circle back to the idea of decentralization and community ownership. One thing that rarely gets clearly defined is: what actually is a project’s community? Are we talking about token holders, users, or developers?

WP: At the simplest level, the community is made up of token holders. But ideally, your token design turns users and developers into token holders too. When that happens, the people who use and build on the network also have skin in the game.

Ethereum is a good example. If you’re a user, you need ETH to pay for gas. If you’re a developer, you likely hold ETH in your treasury for contract deployments or infrastructure costs. Many NFT mints and token sales are priced in ETH. That naturally creates alignment — just by participating, you’re accumulating and holding the asset.

Now, over time, we’ve moved toward more user-friendly designs that decouple usage from token exposure. For example, some apps charge fees in USDC and swap it under the hood into the protocol token. That’s great for UX, but it can weaken the connection between usage and ownership.

Community ownership works best when active participants are economically tied to the network’s success. If users and developers don’t have a stake, then the token holder base becomes more like passive shareholders — often disconnected from what’s actually happening in the ecosystem.

CN: If you follow social media, you often see that short-term price movements dominate the discussion. In this sense, retail investors behave somewhat like shareholders, more concerned about extracting value out of a protocol than its long-term growth. In this case, are we just recreating the traditional financial system?

WP: It’s a valid concern. If you spend time on crypto Twitter or Telegram, the discourse is dominated by quick gains and price speculation. But interestingly, all of the best outcomes in crypto have come from long-term holding. Most people who actively traded BTC or ETH over the last decade underperformed those who simply held for five or ten years.

The same pattern exists in other markets — stock traders generally underperform long-term investors. House flippers usually do worse than people who just buy and hold. Crypto is no different. The volatility attracts short-termism, but it’s not a winning strategy.

Now, as for the structural question — how do we prevent crypto from becoming just another version of the legacy financial system — I think it comes down to token design. A well-structured token should align value with actual usage. When network utility drives token demand, price becomes a function of real adoption.

Ethereum during the 2021 cycle was a good example of that. People were willing to pay $50–$100 in gas fees, and ETH had strong burn mechanics through EIP-1559. Usage is directly translated into value for token holders.

Unfortunately, many tokens today are disconnected from fundamentals. You’ll see chains with multi-billion dollar fully diluted valuations (FDVs) and only a few thousand dollars in revenue. Even with a 10x increase in usage, that barely moves the needle. Until that disconnect is resolved, speculation will dominate — and token holders will act more like shareholders than stakeholders.

Markets are still inefficient. I’ve been waiting for them to become rational since 2013. Back then, I watched Steemit — a Reddit-like crypto platform with a few thousand users — get valued higher than Reddit itself. Those kinds of distortions still happen.

As long as tokenomics remain decoupled from real utility, you’ll get weird behaviors. But if projects focus on fundamentals — usage, alignment, ownership — the financial model can reflect something genuinely new, rather than a Web3 version of Wall Street.

CN: To wrap up — are there any trends you’ve been thinking about that aren’t getting enough attention in the broader crypto conversation?

WP: One big one is developer experience. Most people haven’t built crypto apps and don’t realize how difficult it still is. Even simple things — like accepting a Stripe payment and minting an NFT in response — are surprisingly complex. There are so many potential failure points between Web2 and Web3.

That’s something we’re focused on solving: how do you let developers build the app they want, while abstracting away the complexities of validators, message passing, and on-chain mechanics? Ideally, application teams should just be able to focus on UX and core logic — while the chain handles the crypto plumbing behind the scenes.

Another trend that I think is still underrated is on-chain gaming. The 2021 narrative was all about asset portability across games, and while that didn’t really materialize, the core idea still holds value. When you encode asset issuance rules on-chain, you get transparency and permanence. Compare that to something like Counter-Strike, where a rule change by Valve wiped out the value of many skins overnight.

People still spend billions of dollars on in-game items — it’s a massive industry. And I think it’s better when those assets are governed by smart contracts rather than arbitrary corporate decisions. Even if the dream of interoperable gaming hasn’t arrived, we shouldn’t dismiss the entire category. There’s still a real opportunity for crypto to improve how gaming economies work.

CN: Should there even be a multi-billion-dollar market for pixels?

WP: I see in-game assets the same way I see luxury goods or art. Humans have always spent money on things that signal identity, status, or affiliation. Gold has held cultural value for thousands of years. Skins or NFTs aren’t so different in that sense.

That said, I hope crypto doesn’t rely only on status-driven use cases. Ideally, that becomes a small part of a much larger ecosystem — one where capital moves on-chain, ownership is broadly distributed, and networks are built around real utility.