The battle between banks and DeFi is a victory for individual crypto investors


Today’s banking and financial situation presents a complicated labyrinth that even experienced bankers can hardly manage. Although on the surface, there are methods for this madness. As Nobel laureates such as Muhammad Yunus and Joseph Stiglitz have warned in the past: Central banks in particular have transformed to control the status quo.Or in Character Mike Maloney, an expert on currency history and economics, said: This is “the biggest scam in human history.” Maloney believes that handing over the keys to the currency printing press to a small group of unelected people will undoubtedly weaken the purchasing power of workers’ savings, and this is beneficial to the few who have benefited from rising asset prices.

After the global financial crisis and devastating bank runs on a global scale, individuals and small business owners who just want to keep their earned wealth are asking more and more: Does my bank work for me, or do I work for my bank? However, until recently, there were no substitutes for central bank currencies, and no one could provide the services of commercial banks and investment banks.

Nowadays, with the emergence of cryptocurrency and decentralized finance (DeFi) platforms, institutional banks are no longer the only players in the game.Before the 2008 financial crisis, it was once the indisputable or even unconstrained power of institutional banks crisis, Because thousands of new entrants are vying to change the foundation of the financial system as we know it, and are now vying for it.

So, what does this mean for ordinary people?

DeFi and traditional finance

In order to eliminate some fog, let us compare the advantages of DeFi and traditional centralized banking and finance from the perspective of individuals and small and medium enterprise (SME) business owners.

In traditional banking and finance:

The individual bears the risk of lending savings to the bank. Most banks use partial reserve banking, which means that if someone deposits $100, the bank can lend $90 and only need to keep $10 at any time. As the 2008 crisis demonstrated, most of these are invested in complex financial instruments, which may be prone to credit default.

Personal purchasing power decline by default.The fiat currency stored in the bank is tie In the monetary system, it can be devalued by inflation and currency devaluation. Therefore, if you deposit $100,000 in a bank account at the beginning of the year and the U.S. dollar currency depreciates by 10% that year, by the end of the year, your savings can be purchased 10% less than before.

Standard interest Rate It can be around 0.03% to 0.09%. But, for example, if the currency depreciates by 10%, you will still fall by 9.91-9.97%.

There are often obstacles to opening an account and accessing certain banking services.Set by the bank Require Examples include loyalty, minimum balance (e.g. 2,000,000 USD), credit check and access to banking services.

Personal data is tracked, which is technically bank data, according to Riley v. California, 573 US 373 (2014).

The range of financial products provided is limitedLoan applications are often tedious and difficult to pass, and many of the people who need it most are excluded.

In contrast, in decentralized finance:

  • Individuals can fully control their own finances, can trade freely, and can even put assets in cold storage for higher security.
  • Individuals can invest in a wide range of assets, such as Bitcoin (Bitcoin) It is not linked to the US dollar and can be used as a hedge against inflation.
  • Users can put their savings to work for them on the DeFi lending platform and trade digital assets such as tokenized artworks. Although it is unstable, the return can range from 2% to 50,000%, with options.
  • There are fewer lock-in contracts (if any) to use the service-individuals can come and go as they please.
  • There are no “bank fees”, although there may be gas fees or transaction fees like Ethereum.
  • Individuals can open anonymous accounts to trade and store their wealth.
  • Individuals can use more financial products, such as Instant loan Using their cryptocurrency as collateral, leveraged transactions can be conducted without lengthy and complicated approvals.

related: Decentralization and Centralization: Where is the future?Expert answers

DeFi adoption

In general, the new advantages of decentralized finance will definitely put traditional banks into trouble.In fact, analysts like Robert Bridlov suggestion, According to the principle game theory, Institutional banks will have no choice but to join this revolution to stay relevant. Even conservative fund managers like Ray Dalio and David Morgan have joined the trend, openly talking about adding cryptocurrencies to their portfolios.Just recently, United Wholesale Mortgage announced that they will Accept Bitcoin to repay your mortgage. And, with the news of the world The first Bitcoin exchange-traded fund (ETF), the adoption rate of decentralized finance in traditional finance will further rise.

It seems that decentralized finance has won the first battle. However, the war is not over yet.At the time of writing, as many as 98% of executives surveyed globally said Keep Invest in traditional banking systems.In fact, more than US$127 trillion in funds worldwide has been manage By comparison with banks and bank-centric payment gateways, the market value of cryptocurrencies is only $2.2 trillion (less than 2%). It can be said that decentralized finance is still in its early stages.

related: What hinders pure Bitcoin ETF?

This means that for at least the next 10 years, there will still be a sizable addressable market for companies seeking to bridge the gap between the new decentralized finance and the old centralized finance. Driving this growth is the increasing acceptance of cryptocurrencies by regulators and the availability of new tools for companies to use cryptocurrencies in a compliant manner.

First, major financial centers like Singapore now have a clear licensing system for crypto companies. This allows crypto companies to operate with the same legitimacy as traditional financial institutions. Regulatory acceptance has given institutional investors and large multinational corporations the confidence to conduct crypto transactions.

Second, there are now some tools that allow companies to manage their encrypted payments in a compliant manner. For example, remote workers and business owners can issue and track invoices denominated in one currency (such as U.S. dollars) and get paid in any other currency (such as ether) (Ethereum). This simplifies processes such as invoicing, payroll, and encrypted accounting.

Therefore, although decentralized finance has not yet achieved mainstream adoption, for individuals, two things are still certain. First, as the adoption rate of DeFi increases, the need for banks to compete to win business will increase. Second, for the first time in history, you as an individual are more capable than ever to benefit from changing financial conditions. This may be the greatest victory of all of them.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should research on their own when making a decision.

The views, thoughts and opinions expressed here are only those of the author, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Christopher Rasuet He is the co-founder of Request Network, an open source protocol supported by YCombinator that provides a suite of financial products based on blockchain, ranging from invoices to payroll, expenses and accounting, exclusively for crypto-first companies. Before co-founding Request in 2017, Christophe was working on other crypto projects, such as Moneytis, and used crypto as the backbone for fund transfers in 2015. Christophe has accumulated extensive experience as a financial manager, working in various companies internationally in North America, Europe and Asia.