What services do you take for granted? Most likely, everyone reading this article has the ability to open a checking account or apply for a loan. But what about the “unbanked?”. According to the World Bank’s Global Findex report, 1.4 billion adults were “unbanked” worldwide in 2021. The United States, a “developed country” accounted for 5% of the “unbanked” globally with over 13 million adults. Individuals categorize those without an account with a regulated financial institution as “unbanked”. Such as a bank or credit union. Reasons for being “unbanked” include distance to a financial institution, lack of identification, and money. All obstacles Decentralized Finance [DeFi] a globally accessible financial system aspires to remediate in the next decade.
Decentralized Finance, also known as DeFi, provides globally accessible financial services 24/7 to anyone with a mobile phone and internet connection. This will enable the farmer in the third-world country access to the same financial services as the broker on Wall Street. DeFi refers to peer-to-peer [P2P] financial applications leveraging blockchain and other Distributed Ledger Technologies [DLTs]. Which forms the backbone for Web3. DeFi applications automate traditional financial processes. Additionally, enabling a more resilient financial system that does not rely on third parties and intermediaries. By using smart contracts, which is code that self-enforces and self-executes “Terms and Conditions.” Without human intervention, lending and borrowing prediction markets can facilitate a wide range of financial services.
Paradigm Shift of DeFi and Web3
The paradigm shift of DeFi and Web3 is self-custody. For millennia society has relied on third parties to hold custody of assets and facilitate financial transactions. As opposed to a bank holding your currency or a brokerage buying your stocks. Web3 allows a user to self-custody their financial assets. This can happen through a software or hardware wallet, and connect to a DeFi application to facilitate a transaction. For example, lending applications such as Aave and Compound. These applications allow users to lock up digital assets into smart contracts in order to earn interest on deposits. In fact, this is all done without an intermediary.
Defi and Web3 unlock the ability for participants to “become their own banks”. Which opens a world of opportunities for those previously restricted by financial, geographical, and identity barriers. DLTs such as blockchain enable an automated borderless ecosystem. This allows marginalized communities without financial services and legal identities to participate in the global economy. Every citizen of this planet should be entitled to equal access to financial services in our modern world of interconnectivity.
We do not intend to provide financial, investment, legal, or tax advice with this material; it is for informational purposes only.Recommend0 recommendationsPublished in