DeFi in the Future: Will My Young Son Even Want a Bank Account?
Given the Cambrian explosion of the decentralized economy, the question I find myself asking more often is: ‘will my newborn son have (or even need) a bank account when he’s older?’
Just five years ago, this question would have been laughable. Since its inception, the bank has served as the centerpiece of the global economic quilt. The economic fabric of that system seemingly unravels without the bank weaving it all together.
Today, however, this question is not only legitimate but somewhat hard to answer. Especially considering the extensive capabilities of decentralized finance (DeFi). Now, an individual has the ability to trade, save, lend, borrow and stake assets to earn substantially more yield, all without a bank operating as an intermediary.
Will the decentralized economy usurp the traditional economy? It may seem like a favorable alternative to younger generations. But what might that look like in the years to come?
Bank are businesses
Since the dawn of human civilization, centralized ‘banks’ have been built up in the minds of the populace – framed as a cornerstone of societal order and prosperity. Most individuals can recount the coming-of-age experience of opening a bank account. However, closer examination of the foundation of this system reveals something extremely concerning. Banks are businesses. And oftentimes, predatory ones.
While cryptocurrency empowers and enables a user to own their own assets and access them whenever they please, banks consistently look to take advantage of their users. The nefarious and predatory practices employed by banks not only extract value from users, but outright exploit their customers.
This is no more evident than in the practice of “cross-selling” used by Wells Fargo. The scandal found that, over the course of 14 years, bankers were directed to pressure customers. They persuaded them to open accounts that were not needed or requested. This was a way to collect exorbitant fees – ultimately culminating in a $3 billion criminal settlement.
This is not to say that all banks act criminally. This does, however, indicate that as private businesses banks will always operate in the best interests of their shareholders first. After all, that’s what businesses do. That’s their prime directive. To expect anything else of an inanimate entity could be seen as quite foolish.
That’s precisely why alternative paradigms like the decentralized finance ecosystem are so appealing. As we become wiser to these practices employed by banks and the ways in which they exploit their customers, the allure of cryptocurrency becomes more apparent. With no central authority, the crypto market does not play favorites, nor does it pressure users into poor financial decisions.
Defi and the strength of the economy
Developments over the past couple of years have shed light on the state of the global economy. Namely, the Covid-19 pandemic wreaked havoc on the global economy, and forced many people to reconsider where they could make and store money.
As a result of the pandemic, nearly half of small businesses closed at least temporarily, and employers cut their staff by 39%. In response, the United States doled out north of $5 trillion in relief to individuals and businesses to help them survive the economic crisis.
Where did this money come from? A printer. As individual Americans received cash payments of $1,200, concerns grew over mounting inflation rates and the economic stability of the country after printing and handing out so much money. Interestingly, this kickstarted the crypto boom of 2020.
Cryptocurrency exchanges noticed a substantial uptick in asset purchases in the amount of $1,200. This indicated that people were fearful of having cash on-hand, and, instead, felt it safer to park their capital into crypto assets. All told, 11% of young adults moved their stimulus checks into cryptocurrency – a 4% uptick from the six months prior.
Interestingly, of the young adults who invested in crypto assets, 60% viewed digital assets as a long-term investment. As the markets continue to recover from the pandemic, the younger generation may continue exploring alternatives to traditional banking and investment strategies, given the uncertainty within the market.
DeFi: The promise
Let’s face it — the crypto economy is stronger than people care to admit. Pundits and naysayers are incredibly opportunistic when it comes to crypto’s growing pains. While it has not always been smooth sailing, a zoomed out perspective shows just how rapid the rise of the decentralized economy has been since its inception in 2009.
Even during this turbulent time, there is still incredibly high conviction that the crypto markets will remain into the future. One of the primary reasons that the sentiment is higher than in past bear markets is because of the platforms and infrastructure that are now in place. Between DeFi, NFTs, DAOs, and the growth of blockchain infrastructure, the Web3 ecosystem is a far more robust entity than in previous years.
Unlike previous years, many powerful players from the traditional investment world, including Elon Musk, Mark Cuban, and Kevin O’Leary, are all invested in the large platforms that dominate the space. Investments from these personalities indicate their level of conviction in the space, and the likelihood of its ultimate success. Previously, Web3 appeared as a degen playground. Now however, the space resembles the ease and usability of Web2, but with improved security and ownership.
With that said, it’s quite reasonable to conclude that by the time my son even entertains the idea of opening a bank account, Web3 will be so vastly improved that he may reconsider the need for a bank at all.
Perhaps the primary reason my son may not need a bank account is the fact that cryptocurrency offers economic freedom in a way that the traditional economy cannot. On the surface, many make the assumption that financial freedom simply means having the financial means to do whatever one wishes.
The notion of decentralized finance however, suggests that true economic freedom means an individual has complete control of their funds, with zero reliance on a third party. The promise of an economy free from banking intermediaries is only scratching the surface now, but will be the status quo by the time my son explores banking options.
In the same vein, banks have working hours. Life, on the other hand, does not abide by the same standards. The ability to have round-the-clock access to funds is an incredibly novel concept that many are just now getting accustomed to. In the years to come, the immediacy with which users can move funds will only become more important, and even more attractive.
The bottom line
The decentralized economy is gaining ground on traditional banking by the day. To be clear, the Web3 space will need to continue making major strides to truly compete with the standard, centralized economy. There are currently still difficulties within the, like self-custody of private keys, longform cryptographic addresses, nefarious actors… The list goes on.
However, given the rate of improvement to this point, my confidence remains high that the decentralized ecosystem may be my son’s first choice for banking when that time comes.
About the Author
Simon Furlong is the Co-Founder of Geode Finance, a white label liquid staking protocol for DAOs and DeFi protocols. Simon has more than a decade of combined experience in the financial, digital product, and media rights sectors, working previously as a risk analyst, product lead, and media rights director. His professional experiences and passions have inspired his mission to build products that support the growth of an efficient, decentralized, and vibrant Web3 ecosystem.
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