Unless you've somehow curated your social media feeds to perfection, you've most likely seen some form of content around crypto, NFTs, DAOs, or DeFi at some point throughout the year.
While we've witnessed Beeple's NFT sell for $69 million or brands like Adidas and Arizona Iced Tea join the Bored Ape Yacht Club, there are a lot more important developments taking place.
The pixelated punks and animated apes are side effects of innovation.
Remember when the top apps on the app store were the fake Zippo lighter or the fake gun that made sounds when you tapped the screen?
Early developments and creations are never the final form of the overall movement, and we're still so early in the digital & decentralized finance evolution.
And to set the stage, I believe the goal of digital and decentralized finance isn't to completely rebuild a new economy. For the most part, our economy in the U.S. has worked fine.
The goal is to make the world economy and financial structure more efficient and more productive.
A more efficient and more productive financial system could mean higher profitability for business, more control and easier financial transactions for consumers, and less centralized power.
Decentralized finance is simply the removal of the middleman.
An example of removing the middleman:
When you give a traditional bank money to keep in a savings account, they pay you on average .01%.
Why such a low percentage?
Because they're in the business of making money.
They take the money you give them, go out and invest it themselves, earning 3%+, paying you .01% just so they can say it isn't $0, and taking the profit margin for themselves.
There's not necessarily anything wrong with this, they're just making their money.
But why do we put up with it? Well, a lot of people aren't, and that's one reason why decentralized finance is taking off.
The bank's "take-rate" is too high.
If your investments were earning 7% but a financial advisor was taking 6.99%, how would you feel?
Presumably pretty upset.
But that's what's happening every day, and because of a lack of transparency in the financial industry, we don't even know it's happening, or that there are alternatives.
But where there's margin, there's opportunity.
That's how Amazon built their empire.
Amazon cut their costs so low for so long to gain market share and beat out competitors.
Decentralized finance is cutting costs and providing higher returns in a sustainable manner, because reduced costs and higher returns are how it should be.
In a decentralized finance environment, you're your own bank and you can invest and loan out your idle money in savings if you'd like - which could provide you with much, much higher returns than .01%.
We shouldn't be earning .01% on our savings. The only reason we are is because it's the only option readily available.
I moved some of my emergency fund into a stablecoin and I'm currently earning 8.5% on that money.
80x more than at a bank.
Call me crazy, but if someone offered me 80x higher returns with minimal risk tradeoff, I'd take it. And the .01% savings is just one small, small example of an advantage of decentralized finance.
Decentralized finance allows you to issue funds for a loan to a farmer in Korea in minutes. Decentralized finance can also guarantee that you get repaid through the use of programmable smart contracts.
That may not mean much to you, but think of all the other countries in the world that don't have economic structures like we do in the US, and don't have access to funding like we do. The impact and reach of decentralized finance is bigger than the U.S. and our personal day-to-day lives.
Decentralized finance could allow you to get a car loan or mortgage in minutes, not weeks.
Again, decentralized finance isn't trying to change the way everything is done. Just making it more efficient, therefore reducing overall costs, therefore providing us with higher returns/lower fees.
But I don't want to take you too far down the rabbit hole on this fine Sunday morning so here's a couple articles that talk about other applications of decentralized finance if you're interested in learning more:
The first U.S. Bank was created in 1791. Following banks were created to issue loans to citizens of our new country so they could build businesses because they needed the country and the economy to grow.
Those early banks were also created to transform trade & barter because it wasn't efficient - and a uniform currency (the US Dollar) would make it easier and quicker to transact.
We're just in the next phase.
We may look back in 50 years and wonder why people were transacting with paper money and coins & using a bank when digital currency and decentralized finance is much more efficient — just like the Founding Fathers thought that the Dollar and central banking was more efficient than trading eggs and animals.
But if the technology was available back then, they might've created decentralized finance because it gives power to the people and at the time, we just broke free from England.
Thomas Jefferson saw the plan the Alexander Hamilton had laid out for the first central bank and had these concerns:
"[He] was afraid that a national bank would create a financial monopoly that might undermine state banks and adopt policies that favored financiers and merchants over plantation owners and family farmers.
Such an institution clashed with Jefferson’s vision of the United States as a chiefly agrarian society, not one based on banking, commerce, and industry. Jefferson also argued that the Constitution did not grant the government the authority to establish corporations, including a national bank"
They wanted the power, they got it, and now after 200+ years, it might be time to evaluate how that power is being used and if it's truly helping the people.
Decentralized finance matters because finance wasn't meant to be centralized.
And decentralized finance isn't the only way forward, but it's the most equitable way forward.