Decentralized Finance (DeFi) is a game-changer in finance, offering unmatched accessibility and financial inclusion that traditional financial systems have struggled to provide. In this section, we will look into three key aspects of DeFi’s accessibility: its borderless nature, its ability to serve the unbanked and underserved, and its capacity to make advanced financial tools available to everyone.
Borderless Access to Financial Services #
One of the most changing features of DeFi is its ability to go beyond geographic limits and operate globally.
By using the power of public blockchains like Ethereum, DeFi platforms can provide financial services to anyone with an internet connection, no matter where they are located or what nationality they are.
This is very different from traditional financial systems, which are often limited by national borders and complex rules.
The effects of this borderless access are profound. For example, look at migrant workers who often face very high fees and long delays when sending money home through traditional services for sending money.
With DeFi, these workers can now use borderless platforms to send money instantly and for a fraction of the cost, thanks to the low fees and high interest rates made possible by DeFi.
This not only helps the workers themselves but also has the potential to encourage economic growth in their home countries by making it easier for money to flow.
DeFi’s borderless nature gets rid of discrimination based on location or nationality, creating a more inclusive and fair financial ecosystem. As DeFi continues to evolve and mature, we can expect to see even more new solutions that use the power of borderless access to drive positive change globally.
Banking the Unbanked and Underserved #
A critical part of DeFi’s accessibility is its potential to provide financial services to those who have been historically excluded from traditional banking systems.
According to the World Bank, an estimated 1.7 billion adults worldwide still do not have bank accounts, lacking access to even the most basic financial services like savings accounts, credit, and insurance.
This lack of access to finance keeps people in poverty and hinders economic growth, especially in developing nations.
DeFi offers a powerful solution to this long-standing problem by offering financial products with much lower barriers to entry.
Unlike traditional banks, DeFi platforms do not require minimum balances, credit checks, or lots of paperwork.
This means people without bank accounts in developing nations can now access DeFi savings and lending products, allowing them to earn interest on their money and access credit when needed.
Consider a potential scenario where a DeFi lending platform collaborates with a local community organization in a developing nation.
This partnership could provide small loans through the DeFi platform, empowering small business owners and entrepreneurs who have historically been shut out of the traditional financial system.
With access to these funds, they could invest in growing their businesses, stimulating economic activity and creating jobs in their local communities.
Democratizing Access to Advanced Financial Tools #
DeFi is changing accessibility by democratizing sophisticated financial instruments – tools that were previously only used by big investors and very wealthy people. Through DeFi platforms, regular users can now access a wide range of complex products, like derivatives, synthetic assets, and structured products.
To understand the importance of this, let’s look closer at some of these advanced financial tools.
Derivatives, for example, are financial contracts whose value comes from an underlying asset, like a stock or commodity.
Synthetic assets are digital versions of real-world assets, like gold or real estate, that can be traded on blockchain platforms.
Structured products combine different assets and derivatives to meet specific investment goals.
Traditionally, access to these advanced financial tools has been limited to affluent investors and high net worth individuals because of their complexity and the high minimum investment requirements. However, DeFi platforms are changing this by letting regular users access these products with much lower minimum investments and without intermediaries.
Consider a teacher with a modest amount of savings who wants to invest in different assets.
Through a DeFi platform like Synthetix, this teacher can now gain exposure to many synthetic assets, like gold, silver, and different currencies, without having to buy the actual assets directly.
By investing in these synthetic assets, the teacher can potentially earn higher returns than with traditional savings accounts while also benefiting from diversification and risk management.
DeFi platforms are also letting regular users take part in yield farming, a strategy where you lend cryptocurrencies and earn interest.
By yield farming, regular users can potentially make more than they would with traditional savings accounts. This is especially significant for people in countries with high inflation or low interest rates, where traditional savings may not provide enough returns to keep up with rising costs.
DeFi’s unprecedented accessibility and financial inclusion have the potential to transform finance globally. By providing borderless access to financial services, empowering those traditionally excluded from the banking system, and offering sophisticated financial instruments to everyone, DeFi is fostering a more equitable and democratized financial landscape that empowers people and businesses worldwide.
As DeFi evolves, we can anticipate novel applications of decentralized tech to drive positive change and open up new opportunities.
