Why DeFi will Replace Banks
I think everyone remembers being told to put your coins in a piggy bank, because that was a safe place to put them, right? Your siblings couldn’t get your money unless they broke the whole thing or knew about the cap at the bottom. Even then you knew who the culprit was if your coins were missing.
Eventually you broke that piggy bank, and your parents told you: “put that money in a savings account. Save it for later.” You didn’t know any better and all your life every movie, book and authority figure has been engraining in you: “banks are safe.”
You put all your $500 into a bank to earn the meagerly .15% APY in their checkings account.
What the 10 year old you doesn’t know is that they don’t have all your coins and $1 bills anymore. They have none of it, not a single penny. They probably loaned it out to an investment bank to make 5%-7% APY while they pay you nothing for their privilege.
And if their investments fail, then they may very well become insolvent on the money you thought you were “saving.” Sucks, doesn’t it?
Yeah sure, the FDIC insures you until $250k, but all they are really doing is making sure that the bank can continue with its risky investment schemes.
Once the modern banking system is better understood, in all of its glory there will be a want to shift away from utilizing it so centrally in everyday life.
The main problems we see with the current paradigm is a lack of transparency and little to know liquidity controls that make sure that a customers funds exist and are protected. This does not even get into the question of fees and lack of efficiency in modern systems that slow global economic systems down significantly.
Transparency, security, low fees, and efficiency first infrastructure. Do we know anything that sounds familiar to that? Blockchain tech. Specifically DeFi (decentralized finance).
An industry that has emerged and has been around for less than a decade is already taking on the biggest in the world. In a few short years we have build solutions for payments, earning yield on “savings” type assets, derivatives for digital assets, identity tech, capturing off-chain value on-chain and much more.
The idea of going “bankless” is continuing to grow with many becoming their own financial institution. This might sound crazy so what would this look like for you?
It means you would be paid on chain in stablecoin or a currency of your choosing. It means you would pay for your everyday items using payment services that enable crypto to fiat payments. It means the money you save might be gaining interest in a diversified stablecoin vault, like Clip Finance’s AIV. It means that when you need a loan you back it with your on-chain assets. It would like this and so much more. With an interconnected digital world growing faster than any other industry, the opportunities are endless.
Now imagine what you will be avoiding: you will never not know where your assets are. You will never wonder how the interest on your money is being generated. When you make a payment to your friend, it will be instant and there won’t be processing fees. And there will always be a digital footprint that you can trace and keep those you entrust your money to honest.
This is the financial system of the future and we hope you will join us in building and testing it for the world to come.
