“DeFi” has been an especially hot topic in the crypto space and for good reason. It is right at the intersection of real use cases today and future use cases for mainstream adoption.  In the crypto space, decentralized finance is allowing people to lend crypto assets to one another in a trustless way, and as reported by Asia Blockchain Review last week, US$500 million in Ethereum and Bitcoin are locked in DeFi products.

Three groups of people stand out, comprising those living with high inflation, those who are tired of banks, and the ID-less population of the world.

People in countries with high inflation rates

Government money or “fiat” is inflationary, meaning that most people learn ways to store value in places that it will maintain its value.  In the cases of currencies with “creeping inflation,” the rate of value loss is less than 3%. Rates higher than 1-3% are known as “running inflation,” which is >10% per year,  while “hyperinflation,” is >50% per month. Inflation rates like these make it difficult to save money, as the value erodes over time. It also means that any excess cash needs to be held in value somewhere else, creating asset bubbles and transaction friction.  3.7 billion people live in countries where the local money has an inflation rate higher than 5%, including 680 million with rates higher than 10%!

The DAI stablecoin, which underpins the DeFi movement, is a spectacular place to store value in the long run as it is pegged to the US Dollar.  The US dollar is stronger than the currency held by 80% of the world. More importantly, DAI is available for use by anyone in the world, and a growing number of fiat gateways will allow people to access it.

As an example, consider if someone in Argentina had 100 Argentine Pesos in 2009. Today they would need 559 Pesos to buy the same amount as they could have back then, meaning their value is only 17% of what it was 10 years ago!

If those same 100 Pesos were used to purchase USD in 2009, how much would that be worth today?  It turns out that if you converted 100 pesos to dollars in 2009, you could sell those dollars today for 452 pesos.  This is the power of inflation protection in a hyperinflationary economy.

The DeFi movement has the power to give more people the opportunity to protect their wealth.  The above example is only the inflation protection, and in fact people using DeFi protocols also have the added opportunity to earn interest on their balance as well.  This means they receive both a store-of-value in a relatively stable asset pegged to the USD and the returns earned on lending that asset on DeFi lending platforms.

People who are tired of banks

One popular term in the crypto space is “the unbanked.”  We often hear things about “banking the unbanked.” Well, what about the banked who are frustrated with it?  My team has been collecting stories and were overrun with replies from people fed up with not owning their money.  So many stories poured in from those who lost access to their funds, were unable to jump through the unintuitive paperwork hoops, and who were told outright that they would not be able to withdraw their own money! 

Here are some highlights:

• “Card blocked while traveling abroad with family. No notification. Didn’t have a back-up card at the time. Took 5 days to get it un-blocked.”
• “Tried to buy an expensive thing but the card refused the payment. It has on a Sunday and I can’t reach anyone via phone because every number on the card gave me the auto message : “sorry but you have to go to a physical bank”  So I couldn’t buy on the day. It felt like my money was not in my control”
  
• “Sold a camera on ebay, when i went to bring money in from paypal bank called to say the buyer had the same name as a flagged terrorist so the transaction was denied
• “I went to buy my first computer from Apple. I swiped my card for $2k. The card declined. I checked my balance on my app. Funds are there. I call bank and ask what the issue is. Bank says I have a spending limit. I ask to lift limit, bank says no.”
• “I ask the bank how I am supposed to use the money I have deposited. Bank tells me to withdraw cash. I walk to bank. Bank teller says I don’t have proper ID to do this kind of cash withdrawal. I go home, get my passport, get cash, buy computer. The process took +3 hours.”

What DeFi solutions allow people to do is actually own their money.  This is not a matter of words and semantics; when you hold the keys to your own DAI balance, you own your money, whereas when your money is in a bank, you own an IOU called a “deposit slip” that can be redeemed for your money at the bank’s choosing.  If you fail to comply with their regulations, arbitrary security policies, or are otherwise flagged, you may not be able to access your own money when you need it.

People without government ID

At the very least, the people highlighted above have the option to join the financial world.  For the ID-less individuals of the world, no options currently exist when it comes to accessing basic financial services.  This means relying on informal financial services, such as savings clubs or unregulated remittances. These services can be surprisingly effective on a small scale, but carry inherently higher risks and costs.

This is the reality for 1.1 billion people, or 14% of the world’s population.  While many reside in developing nations, a surprising number can be found in the developed world: Singapore alone has an ID-less rate of 37%.  This disproportionately affects lower-income and migrant workers, further condemning them to poverty.

DeFi has the potential to help these people, as there are no requirements for holding a DeFi balance.  

Conclusion

DeFi solutions have the potential to help the three groups mentioned, but still have a long way to go in terms of usability.  Most wallets and exchanges require advanced knowledge of crypto subjects, presenting off-putting risks and keeping people away for this reason. DeFi is nevertheless very promising in the story of crypto adoption, with crypto now boasting solutions that the average person can both understand and stand to gain from without drastically changing their financial lifestyle.  As these tools become easier to access, DeFi will likely be at the forefront and leading the way in mainstream adoption of cryptocurrency.

New Content Contributor: Mosendo

We are excited to onboard our new content contribution partner: Mosendo. Mosendo provides borderless access to money and wealth, with decentralized electronic cash system which enables you to get DAI and change back into local fiat whereby users can send money to anyone, anywhere, using Mosendo.com app. Mosendo also hosts DeFi Nation, a thriving community, focuses on accelerating and leveraging DeFi space.

About Asia Blockchain Review

Asia Blockchain Review is the largest initiative for media and community building in Asia for blockchain technology. It aims to connect all blockchain enthusiasts on a regional scale and facilitate the technological foundation of blockchain through a range of group discussions, technical workshops, conferences, and consulting programs.

Our goal is to cultivate and encourage a collaborative community for our members to gather, share their experiences and endeavors in the blockchain space, and brainstorm the potential uses of blockchain technology.

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About the author

Rossco Paddison

Contributing Author

Rossco Paddison is the CEO & co-founder of Mosendo, where they’re making peer-to-peer electronic cash a reality. Also co-founder of DeFi Nation, a thriving DeFi community.