The internet is no longer merely a helpful utility we connect to, but an integral part of our daily lives. It’s helped us build communities, expand our professional networks, and maintain our relationships no matter the distance or time that separates us. It was only a matter of time before this ubiquity expanded into the world of finance.
Managing our money has never been easier. With the click of a mouse, or the installation of an app, we are able to balance budgets, invest in stocks, or check up on our loan and credit statuses. However, beneath the hood of these technological innovations, there lies a series of systems of checks and balances more than a century old.
Since the 2000s, the exponential growth of global networks and the subsequent flow of money has led to a need for an altogether new approach.
Wouldn’t it be great to be able to send money directly to a business partner in the US without having to worry about conversion and international fees? Wouldn’t it be even better to have these transactions take place near instantaneously? And what if everything was based on open books, without the need for the hidden middle man in his office block checking in on your accounts at arbitrary times?
This was the impetus for the advent of decentralised finance - commonly known as DeFi.
As cryptocurrency became steadily adopted in the early 2010s, a subset of crypto enthusiasts wished to expand on the potential of blockchain technology to bypass the need for traditional financial services in a significant way. By connecting peer-to-peer transfers through the Ethereum network, a whole world of new possibilities was opened.
Rather than relying on archaic systems of checks and balances, or waiting for banks to approve loans and complete credit score checks, DeFi gives the individual complete control of their assets. How so? There’s no need for internal institutional accounting when the entire list of possible exchanges and transfers is made public through the blockchain.
This world of DeFi was the next iteration of the original thought proposed by Satoshi’s 2011 Bitcoin whitepaper:
The only way to confirm the absence of a transaction is to be aware of all transactions.
The transparent and globally distributed network of DeFi is an unparalleled opportunity for anyone with an internet connection and a little bit of technical savvy to participate in a rapidly transforming financial sector.
Combined with the myriad of adaptable implementations on the Ethereum blockchain, traditionally difficult services such as international transfers, and lending and borrowing are being improved for worldwide use today. It has empowered migrant workers to send money home to support their families and loved ones without the need for potentially manipulative middle men
. Furthermore, through burgeoning platforms such as AAVE and Compound, anyone with an internet connection and crypto wallet is able to interact with a global network of lending and borrowing at any financial scale (with much higher yields than any regular brick and mortar bank can offer).
Another strength of DeFi is its ability to integrate automation and optimisation through tools such as smart contracts. Cognitive biases by unseen bureaucrats, or banking manipulation by bad faith actors are thrown out the window thanks to the use of both AI and computer programs, highlighting one of the core tenets of cryptocurrency - a fair, open world of financial opportunity without discrimination.
Decentralised finance is simply a way of putting the power back into the hands of the one who matters most when it comes to your money - you. The digital world is more connected than ever. Financial traditionalists and naysayers may still be wary, but it’s about time the financial world caught up with the rest of us.