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Banks are no longer the only player in the financial industry as Decentralized Finance (DeFi) builds credibility and gains widespread adoption.
The state of banking and finance today is a complex labyrinth in which even experienced bankers struggle to cope. Despite appearances, there is a reason for this madness. As Nobel laureates such as Muhammad Yunus and Joseph Stiglitz have previously warned: in particular, the central bank has undergone changes to keep the status quo in check. Also, Mike Maloney, an expert on monetary history and economics, says: This is “the biggest scam in the history of mankind.” Maloney explains that giving a small group of unelected people the keys to the money printing press will undoubtedly erode the purchasing power of workers’ savings in favor of the few who benefit from asset price inflation.
In the wake of the global financial crisis and the devastating flight of banks around the world, individuals and small business owners who simply want to keep their earned wealth are increasingly asking the question: Is my bank working for me or am I working for my bank? But, until recently, there was simply no alternative to the currencies of central banks and no one could provide the services of commercial and investment banks.
With cryptocurrencies and decentralized finance (DeFi) platforms on the scene today, institutional banks are no longer the only players in the game. What was once the undeniable and even uncontrollable power of institutional banks before the 2008 financial crisis is now available to everyone as thousands of new entrants compete to change the foundations of financial systems as we know them.
What does this mean for the average person?
DeFi versus traditional finance
To clear up the fog, let’s compare the benefits of DeFi versus traditional and centralized banking and financial services from the perspective of individuals and small and medium-sized business owners.
In traditional banking and finance:
A person takes the risk of giving their savings to banks. Most of these funds are invested in complex financial instruments, which, as the 2008 crisis showed, can be severely affected by credit default.
By default, the purchasing power of a person decreases. Fiat money held in banks is tied to a monetary system that can be devalued by inflation and currency depreciation. So, if you put $ 100,000 in a bank account at the beginning of the year, and the US dollar depreciates by 10% per year, then by the end of the year your savings can be bought 10% less than before.
Standard interest rates can range from 0.03% to 0.09%. But if, for example, the currency depreciation is 10%, then you will still fall by 9.91-9.97%.
Barriers often arise when opening accounts and accessing certain banking services. Banks set their own arbitrary requirements such as loyalty, minimum balance (eg, $ 2,000,000), credit checks, and access to banking services.
The person’s data is tracked and is technically bank data.
The range of offered financial products is limited. Loan applications are generally tedious and difficult to apply, except for many who may need them the most.
For comparison, in decentralized finance:
- Individuals have complete control over their finances and are free to trade their assets or even put them in cold storage for greater security.
- Individuals can invest in a wide variety of assets, such as Bitcoin (BTC), which are not pegged to the dollar and can serve as a hedge against inflation.
- Users can leverage their savings on DeFi lending platforms and trade digital assets like tokenized artwork. Although unstable, returns can range from 2% to 50,000%.
- There are fewer limited contracts for the use of services (if any) – people can come and go as they please.
- There are no “bank charges”, although there may be gas charges, for example on Ethereum.
- Individuals can open anonymous accounts to trade and store their wealth.
- Individuals can access larger financial products, such as instant loans and leveraged trading, without lengthy and complex negotiations, by using their cryptocurrency as collateral.
DeFi adoption
Overall, the newfound benefits of decentralized finance are bound to give traditional banks an opportunity to spend their money. Indeed, as analysts such as Robert Breedlove have suggested, according to the principles of game theory, institutional banks will have no choice but to join the revolution in order to remain relevant. Even conservative fund managers like Ray Dalio and David Morgan joined in, publicly announcing the addition of cryptocurrencies to their portfolios. Most recently, United Wholesale Mortgage announced that it would accept bitcoins to pay off mortgages. And with news of the world’s first bitcoin exchange-traded fund (ETF), the pace of decentralized finance adoption in traditional finance is set to accelerate.
Decentralized finance seems to have won its first battle. But the war is not over yet. As of this writing, up to 98 percent of global leaders who have been laid off are still investing in the traditional banking system. Indeed, more than $ 127 trillion by funds worldwide are managed through banks and bank-focused payment gateways, while the market capitalization of cryptocurrencies is a paltry $ 2.2 trillion by comparison (less than 2%). Suffice it to say that decentralized finance is still in its infancy.
This means that for at least the next 10 years there will be significant available market for companies looking to bridge the gap between new decentralized finance and old centralized finance. The driving force behind this growth is the growing acceptance of cryptocurrency by regulators and the availability of new tools for businesses to use cryptocurrency as required.
First, large financial centers like Singapore now have clear licensing regimes for crypto companies. This allows cryptocurrency companies to operate with the same legitimacy as traditional financial institutions. The regulatory enactment gives institutional investors and large multinational companies the confidence to trade cryptocurrencies.
Second, there are now tools that allow businesses to manage their cryptocurrency payments as required. For example, telecommuters and business owners can issue and track invoices denominated in one currency, such as US dollars, and receive payment in any other currency, such as Ether (ETH). It simplifies processes like billing, payroll and crypto accounting.
So while decentralized finance is not yet widespread, two things remain clear to individuals. First, as the speed of DeFi adoption increases, the need for banks to compete for the success of your business also increases. Second, for the first time in history, you as a person have more opportunities than ever to benefit from the changing state of finances. Perhaps this is the biggest victory of all.
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