DeFi: Finance Democratized

“DeFi” (Decentralized Finance) is the most recent buzzword in the crypto community... and for good reason.

While Cryptocurrency democratizes money to the point where anyone in the world with a smartphone can have access to cash, Decentralized Finance democratizes broader financial services in the same way, allowing anyone with an internet connection to exchange currency, offer/receive loans, and more. So while Bitcoin separates money from the Government, DeFi separates finance from the banks!

Andres Solanot, a long time supporter of cryptocurrencies, has devoted the past 3 years of his life to running business development at Figment, where they provide infrastructure and services for DeFi applications.

Andres stated that “Although DeFi is currently in its infancy, the long term implications of its applications properly scaled will have measurable impacts on developing economies. For example, companies like Celo, which are building Global payments infrastructure for mobile first (smartphones), have the potential to unlock value and mobilize economies where banking is not available.”

While having access to banks is very rare for people in underdeveloped countries, mobile phones are reasonably accessible. As surveys conducted in “11 emerging and developing countries across four global regions” find: “the vast majority of adults in these countries own – or have access to – a mobile phone of some kind” with a median 53% of these mobile devices being smartphones (Pew Research Center, 2019). We can now start to see how access to basic financial services through mobile applications will start to change the global economic landscape! Now, anyone, anywhere in the world can receive a loan as long as they can put up collateral and have access to a smartphone. While bank loans normally take several days to acquire, these loans can be set up in minutes!

An intriguing implication of Decentralized Finance is that there is now an alternative to the central banking system. For those who are skeptical about disassociating with the Federal Reserve, I have one very pertinent yet often disregarded word: Inflation.

Inflation, the increase of price levels in an economy that leads to the devaluation of each unit of currency's purchasing power, is the hidden tax that every US dollar holder pays. The president of the Federal Reserve Bank of Minneapolis, Neel Kashkari, has been quoted in his 60 Minutes episode (released way back in March) in saying that “there is an infinite amount of cash at the federal reserve” and that they are prepared to take “aggressive action” when it comes to printing money. These statements have proven true as 35% of all US dollars have been printed within the last 10 months (Netcoin, 2020). What’s more, the US president, Joe Biden, has been fighting for a new 1.9 TRILLION dollar stimulus package to combat Covid-19. By the looks of it, it’s safe to say inflation is not going to slow down anytime soon and (if I may be so bold) hyperinflation is not yet out of the question.

It is my opinion that the banking system we use today is outdated. There is not a faster or cheaper way to send money and receive financial services than through cryptocurrencies. Because of this it is Celo, and many other decentralized projects, that aim to build a financial system that creates the conditions for prosperity—for everyone. Although Celo is a great example of the possible impacts this technology can have, it is just the beginning as decentralized networks will prove to bring transparency to many other facets of our lives, such as borrowing, lending, interest rates, etc.

DeFi is new and it will take time for these infrastructures to be widely accepted. But as they become more well understood, people will naturally gravitate toward their clarity and simplicity.