One thing the pandemic has served to highlight is the inefficiencies and inequalities of the global economy. Many have felt the financial impact of Covid-19 severely while there are others who have profited hugely due to the positions of power and wealth they already held.
As the wealth gap in societies continues to widen it has become apparent that rebuilding these societies and economies based on old decisions and processes is no longer effective. The world has changed drastically and, while the power is still held by a small number of people and organisations, especially in the traditional finance industry, people are beginning to see the innumerable benefits that can come along with decentralisation.
In order for such a system to be achieved and to flourish, decentralised decision-making must be employed. Truly decentralised decision making can only be achieved through a collaborative process and managed through what is known as self-governance. An equitable and collaborative process brings about a free and transparent flow of information, accessible to all. It not only has potential advantages in market dynamics and efficiencies but also on social wellbeing. So with this in mind, the question must be asked whether or not a decentralised financial model could make the global economy more inclusive and more equitable for more people around the world.
The current financial system is geared towards hoarders of capital, creating a cycle that presents obstructions that hinder smaller entities while increasing the market cap of larger, more traditional ones. This is most apparent in the operation of the traditional lending industry, which operates in a very limited capacity due to its rigid structure and cannot keep up with the new dynamics of the world we live in currently. It is an industry heavily regulated and kept in the hands of oligopolies who control the market.
Access restrictions result in loan costs far too high for smaller players to make a dent and, in addition to this, individuals willing to participate in the financing industry as investors cannot enter the industry without a substantial amount of capital. The cyclical chain of wealth distribution paired with the substantial barriers to entry are together inequitable and outdated. The solution to this starts by decentralizing both the access to capital and governance and blockchain, laying the foundations for this new system.
In 2021 we saw crypto become more accessible to those who truly need it. In 2022 it could help kickstart this system that could finally start to narrow the wealth gap and bring more parity to the world.
While the adoption of crypto has largely been fueled by hype and speculation, crypto, blockchain and decentralised finance (Defi), developments in the technology have undoubtedly helped people in need.
For instance, NFTs (non-fungible tokens), are helping artists in developing countries access new streams of revenue, while play to learn games such as Axie Infinity are helping small-income earners in the Philippines generate wealth.
Digital assets have also benefited from a growth in accessibility; from the rise in crypto ATMs to the boost in the number of wallet creations from developing nations, as well as data showing lower-middle-income countries are investing and holding crypto at much higher rates, with adoption surging in over 150 countries this year (an increase of 880%).
While the ultra-wealthy continue to reap the benefits of passive income streams and avoid up to an estimated $163bn in taxes yearly, crypto is finally providing an opportunity for those who are forced to work and survive in a cycle of endless financial bondage the opportunity to break free and gain wealth for themselves.
In this way, the barriers to earning passive income have become democratised and accessible to anyone with the internet and wealth generation through this means is finally not only open to the already wealthy.
We already know that traditional investment strategies such as bonds, trust funds, stocks, mutual funds, exchange-traded funds and annuities, typically ranging from 1-4% are now declining along with the state of the economy.
In comparison, DeFi staking and yield farming offer much larger wealth generation opportunities, with relatively safe yield farming methods on stablecoins generating anywhere between 6-20% through methods of earning interest lie lending and liquidity mining through stablecoin pools.
Single-sided staking, which is one of the yield farming methods, has also become a key way to build mutually beneficial platform-investor relationships.
Allowing token holders to gain yield together with the growth of the platform/protocol, similar to the way stock/shareholders receive dividends from a company in traditional finance methods but with comparatively higher returns, investors can look to earn anywhere between 15-45% a year.
But it may not all be as simple as that. While the decentralised system enables the provision of permissionless, flexible, and low-cost targeted solutions, it lacks a regulatory framework and scalability and exposure. Decentralised services can be hard to navigate due to their complexity, making them inaccessible to the average user, while fully decentralised applications do not provide any client service whatsoever.
While the traditional financial system has substantial downfalls it is a highly established structure with a huge client base and constantly seeks the most efficient services and methods. Maybe both could actually complement each other and create a whole new way of engaging in financial activity that benefits everyone.
Bridging the gap between traditional and decentralised finance would lower service costs, limit middlemen and other arbitrary involvement, empower people, and incentivise everyone within a financial ecosystem to implement newer and more fairly designed economic structures. While self-governance could be predicated on currently established regulations and governance that already exist in the traditional finance world.
Access to capital is predominantly facilitated through our systems of finance, and by decentralising the operation of these systems we can afford more people the ability to access the capital they need, promoting commercial activity and creating a more equitable global economy.
Combining these two worlds of finance together will open up a wider range of individuals to a significantly greater level of accessibility to capital. This, in turn, will enable the development of a more inclusive and sharing economy that we so desperately need. The tools to do this are now at our disposal, and it is up to us how we utilise them to build something new and better.
The Sekuritance RegTech platform provides a single platform for every eGRC need, including end-to-end AML/CTF, CECL, FCPA, vendor management, beneficiary onboarding, investor check, card processing MFA checks, blockchain wallet checks, cyber-risk assessments, and other RegTech or Business Process Management requirements.
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