Why Decentralized Finance is a Leapfrog Technology for the 1.1 Billion Unbanked – The European Sting | Jewelry Dukan

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This article is brought to you thanks to The European Sting’s collaboration with the World Economic Forum.

Author: Anna Stone, Corporate Social Responsibility, eToro; Co-Founder, GoodDollar Protocol, eToro


  • About 1.7 billion people worldwide do not have access to financial services, but 1.1 billion of them have access to a mobile phone.
  • It is therefore likely that many unbanked people will have their first experience of financial services on a decentralized infrastructure.
  • Decentralized finance is key to enabling open access, participation and opportunity for all in the new digital economy.

No technology exemplifies the phenomenon of “leaping technology” better than the mobile phone, the advent of which has enabled even the most underserved communities to completely dispense with the need to implement traditional telecommunications infrastructure such as cable networks and landline capabilities.

Today, an estimated 83.4% of the world’s population own mobile phones. Of the 1.7 billion people who remain unbanked (22% of the adult population), 1.1 billion reportedly have access to a mobile phone. For these people, their first experiences with financial services will likely be on a decentralized infrastructure.

Decentralized finance technology (DeFi), like mobile phones, has the potential to be a leapfrog technology, allowing sub-banks to bypass traditional finance and gain access to digital services and assets that were previously unavailable.

Who are the bankless?

Unbanked are people who do not have an account with any financial service provider. This definition does not recognize informal sources of financial services that predated the modern financial system, such as B. community savings groups, peer-to-peer (P2P) microcredit and other forms of social and community financing.

Estimates suggest that up to 35% of all economic activity in developing markets takes place in the “informal economy,” representing trillions of dollars in “informal economic activity” operating outside of formal financial services in a parallel system. Almost all unbanked people live in developing countries with a young population.

What is decentralized finance?

Decentralized finance is a financial technology infrastructure that reinvents financial services in a P2P model driven by computer code.

Traditionally, banks and service providers are themselves gatekeepers to access services: one must apply and be approved to open a bank account, use a payment application, or access a line of credit.

While fintech technology or fintech companies have overcome the challenge of physical removal from traditional brick and mortar locations, access to financial services is still difficult for those who do not have formal government ID and proof of financial assets.

DeFi infrastructure offers “accounts”, savings and credit, payments and investments in a model that is inherently technology and P2P based, disintermediating institutions. Capital is funded through crowdfunding and community sourcing, financial instruments are software, and the rules of the game are transparent and code-based.

This creates a financial infrastructure that is inherently open, public, transparent, neutral, censorship-resistant and borderless. And one that anyone, anywhere in the world can access with just a smartphone and an internet connection.

In less than five years, decentralized finance has grown into a billion-dollar industry, with a market value of more than $180 billion at an all-time high. From January 2020 to date, the number of users on DeFi has grown from around 91,000 to almost five million.

The number of users of decentralized finance from January 1, 2020 to July 4, 2022

Decentralized finance users 1/1/2020 to 7/4/2022

To be clear, the volume and activity in DeFi has so far been limited to cryptofinancial applications embraced by a crowd not so affectionately referred to as the “degenerate.”

Decentralized finance has not yet been directly embraced by, or designed to serve, unbanked populations. But cryptocurrency adoption data gives us reason to watch DeFi adoption rates up close.

Emerging Markets Ahead in Cryptocurrencies

Emerging markets are ahead of all developed nations except the United States in adopting, mining and trading cryptocurrencies. Many of these crypto-hungry countries have high proportions of unbanked residents: four of the seven nations with the highest concentration of unbanked adults are the countries leading in crypto adoption (China, India, Pakistan, Nigeria).

Globally, even in developed economies with advanced financial services industries like the US, unbanked and unbanked populations have relatively higher acceptance rates for owning cryptocurrencies compared to those who are fully banked.

Those who don’t have a bank account today will never be “banked” – they will go straight into decentralized financial services. Three main drivers fuel this prediction, namely:

The open, permissionless nature of decentralized finance

Anyone can create a blockchain wallet — the crucial technology that enables anyone with a mobile phone and an internet connection to access blockchain-native financial services and global capital markets via DeFi tracks.

The blockchain-based digital wallet acts as an “account” that can be used to send, receive, store and invest digital assets. This serves as a gateway to receiving and transacting foreign currencies and exposure to the global capital markets.

It’s no surprise that in economies like Argentina, Venezuela, and Nigeria, large swathes of the population are choosing to get paid in digital currencies and shift wealth to decentralized digital currencies like Bitcoin and Ethereum. The permissionless nature of crypto makes it the most diversely held asset class in the world.

DeFi enhances existing P2P community financial models

Decentralized financial innovations on community-based financial structures can provide safer, more convenient, and more reliable solutions that enhance the existing informal, social financial infrastructure.

P2P exchanges are already driving crypto adoption in emerging markets for people who don’t have the ability to get started through centralized financial institutions. DeFi-based models for savings and loans are likely to be next. Savings groups are a commonly implemented community-based approach to saving money and making loans that benefit people in the community.

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A DeFi-based approach offers several benefits: digital payments are more secure and easier to track than physical cash and manual accounting, while automating payments and withdrawals ensures fairness and transparency for all members.

Digital community funds could be invested seamlessly, unlike cash, and savings communities no longer need to be region-bound. All of this on-chain data creates traceable, auditable credit histories that could potentially serve as a bridge to larger amounts of capital from outside borrowers.

The Benefits of Crypto’s Universal Basic Income

The growing interest in universal crypto basic income is testament to the increasing recognition that blockchain offers the ability to efficiently distribute money directly to the people, and decentralized finance offers efficient ways of funding and distributing capital over time.

With more than a billion people living on less than $1.90 a day, these big ideas are gaining acceptance as a sensible business model for humanity. Recently, a number of different approaches have reached new stages of viability.

Together, GoodDollar and Impact Market have hosted more than 500,000 members in no-custody wallets and distributed crypto UBI, mostly from countries like Nigeria, India, and Indonesia. Recipients have used the funds for peer-to-peer exchanges, basic needs funding, and research into DeFi instruments such as savings groups.

Bridging the gap between decentralized financial infrastructure, assets and the sub-banks, these projects have viral potential to accelerate adoption.

Challenges in introducing decentralized finance

The true risks and challenges of adopting decentralized finance cannot be overstated. Financial literacy is a start, but it’s not enough — while storing crypto in a digital wallet seems easy enough, DeFi products and assets today are not yet designed to serve vulnerable populations. Basic literacy remains a problem, and 37% of the world still lacks ubiquitous and affordable internet access – a prerequisite for further progress.

The volatility of crypto assets also poses existential risks: with the potential to lose 72% of their value in a year, even the most mature cryptocurrencies pose an enormous threat to those who live check to check. Without clear regulations and guard rails, a lack of consumer protection and market volatility will always pose a threat to DeFi adoption. Adoption depends on more than megatrends.

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What is the World Economic Forum doing in relation to blockchain?

Blockchain is a technology that enables the decentralized and secure storage and transmission of information and value. The most well-known use case is cryptocurrencies such as Bitcoin, which enable electronic money transfers without bank networks. It can be a powerful tool for tracking goods, data, documents and transactions – relevant to numerous industries.

Blockchain poses significant trade-offs in terms of efficiency and scalability, as well as numerous risks that are increasingly becoming a concern of policymakers. These include the use of cryptocurrency in ransomware attacks, fraud and illegal activities, and the energy consumption and environmental impact of some blockchain networks. Consumer protection is also an important and often overlooked issue when it comes to cryptocurrencies. So-called “stablecoins” and decentralized applications built on blockchain technology pose risks to end users of lost funds and to overall financial stability.

The forum has been influential in developing blockchain across industries and ensuring it is used in a safe and responsible manner by:

Contact us for more information on how to get involved.

The implications of the jump to DeFi go well beyond removing the middleman. It enables more open access, participation and opportunities in the new digital economy. It also has the potential to make established financial principles and products more accessible and empower capital-making communities that typically did not have access to them.

Decentralized finance has laid the foundations for driving a truly decentralized world economy that the unbanked can easily adopt and participate in.

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