Kristjan Kangro, Founder and CEO of Change, one of Europe’s leading cryptocurrency investment platforms for retail investors, discusses the DeFi movement and why it’s important for businesses to take stock now.
Nearly every person, business, and organisation worldwide have been touched by the pandemic and its resulting disruption. Naturally, it has led to a lot of reevaluation. From little changes in our lifestyles to monumental shifts in our careers, ambitions and view of the world. Governments and businesses are going through the same reckoning. There’s an understanding that the next few years present an unprecedented opportunity to tackle long-standing problems differently by embracing new ideas.
One area that this is clear for all to see is in global finance. For a long time, we’ve known that many parts of the finance sector don’t function well and, in the case of the 2008 crisis, can cause untold harm. The pandemic induced lockdowns showed just how much we need a transparent and fully digitalised global finance system.
Low business confidence has impacted our regard for banks – a report by Accenture revealed almost a third (32%) of SMEs have lost trust in their banking provider. The figures for customer satisfaction are not much better.
In contrast, the cryptocurrency market is growing at an astonishing rate. At Change alone, we saw our user base up 180% year-on-year this July as more people go beyond initial curiosity to actively invest in cryptocurrencies; a figure which looks set only to grow. Add to this the general embrace of concepts like Open Banking and fintech innovation, and the picture is clear – people and businesses are ready for a new form of finance.
Key to a new financial world is a modernised infrastructure that is truly global and accessible to everyone. This is where ‘decentralised finance’ or DeFi comes in.
To the uninitiated, DeFi is a system by which financial products are available on a public decentralised blockchain network without the need for a centralised middleman, such as a bank or other financial institute. In this way, transactions are based on a complex model of validation written on blockchains, thereby simplifying the complicated procedures, checks and requirements associated with traditional financial requirements without compromising security.
Although the principles surrounding DeFi have existed for several years, the pandemic has seen a surge in interest and a growing recognition that it can be the solution to a lot of the pain points that lockdowns amplified.
Fundamentally, the DeFi model enables total accessibility because anyone can access its tools regardless of citizenship or location. To date, this is seen in its widespread use by ‘unbanked’ businesses in developing markets. A brilliant recent example is how Bancoagrícola has made unprecedented plans to reach the country’s massive unbanked population via digitalisation.
However, the most exciting aspect of DeFi is its potential in creating real, globalised business. Although the word ‘globalisation’ has been thrown around for the past few decades, the reality for many businesses and people is a fractured financial system bound by many different standards, practices, and regulations. Trading internationally requires adhering to reams of compliance that differs dramatically from country to country. It is full of friction, expensive and time-consuming.
Thanks to DeFi, businesses can trade in areas they may not have been able to before without the need of a third party’s approval. This means it is fast, cheap and easy. Previously, a business owner might invest hours in bank manager meetings and other investor relations to maximise capital potential. Equally, any new source of capital would be subject to numerous checks and anti-laundering procedures. Because blockchain technology eliminates the need for an intermediary to process, validate, or authenticate transactions, investments are built purely on factual data – thereby optimising productivity and driving efficiencies.
Further gains come in the form of futureproofing. With widespread permanent working-from-home and the end of many bricks and mortar establishments, the typical businessperson is now much more accustomed to operating from the convenience of their home. The DeFi movement aligns to this, creating ease and making tiresome transactions a thing of the past.
It is also important to note that this architecture offers increased financial security. This is because it ensures total transparency, full transactional history and is immutable – whereby it is nearly impossible to change a transaction once it is written. In this way, investors from around the world are afforded a set degree of standardisation regardless of where they are, the local economy, any new government measures – or even a worldwide pandemic.
Put simply, the future of global finance is decentralised. Now is the time to embrace it and build a better world where international networks and institutions work for people, not against them.