THE GREAT DISRUPTOR: PREPARING FOR THE DECENTRALISED FINANCE MOVEMENT

Imagine a world in which all types of financial requirements – savings, accounts, credit cards and more – are universally accessible to anyone with a smartphone and internet connection. All without the need of a bank.  

Kristjan Kangro

Welcome to a future of Decentralised Finance (DeFi), as the cryptocurrency market continues to disrupt traditional financial infrastructure and, in turn, offer big benefits for business. Here, Kristjan Kangro, Founder and CEO of Change, one of Europe’s leading cryptocurrency investment platforms for retail investors, advises on the DeFi movement and why it’s important for businesses to take stock now.

One unlikely consequence of the pandemic is that it has brought the growing case for a more transparent, digitalised approach to global finance to the fore.

With national lockdowns around the world placing large parts of the economy on hold, many well-established financial markets have collapsed, only some have managed to sustain market share – and just a very small minority have grown.

At the same time, interest rates have hit an all-time low – some to as little as just 0.05 percent –  alongside asset and commodity prices, and government bond yields too.

The result is a marked shift in the way we view traditional finance. Low business confidence has impacted our regard for banks and the like – a recent report revealed almost a third (32%) of SMEs have lost trust in their banking provider1. Conversely, investment in cryptocurrency continues to warm in offering a safe-haven currency amid market volatility. This was seen as bitcoin recently surpassed the $50k mark for the first time.2  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.

And so, as economies around the world continue to pivot towards the emerging ‘new normal’, there is a pressing need for a modernised financial architecture which is able to better deal with the challenges – present and future – presented by the pandemic.

Cue the growing case for DeFi.

In its simplest form, DeFi is a system by which financial products are available on a public decentralised blockchain network without the need for a centralized 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 negating the complicated procedures, checks and security requirements associated with traditional financial requirements.

Despite having been around for a number of years now, the past year has seen the DeFi category garner greater interest than ever before in providing the disruptive force needed to modernise financial services and drive growth.

This can be attributed to a number of key commercial benefits. 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 such as – at Change, for example, our VISA card has become vital in enabling business transactions in developing economies such as Indonesia and Sub-Saharan Africa.

Going forward, however, the acceleration of DeFi will open the world of finances up to wide-ranging new possibilities, so businesses can trade in areas they may not have been able to before without third-party approval.

Another huge advantage is the speed and ease at which DeFi transactions take place. 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 the use of 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.

With the Covid crisis serving to highlight unseen weaknesses in the traditional financial system and ignite greater interest in cryptocurrency, businesses have a unique window of opportunity to spearhead the DeFi transition. With benefits that include improved efficiencies, new capital opportunities and futureproofing, it’s virtually a no-brainer.

1 https://fintechmagazine.com/banking/customer-trust-banks-remains-low-during-covid-19

2 Forbes 

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