Blockchain Liquidity Pools

Decentralization is shifting the global economy.

Many indicators highlight recent shifts toward decentralization, on a global scale. In the USA, the call for “America-first” policies, which cuts spending on international cooperation in favor of domestic investment, resonates with voters. The Biden Administration is pursuing an “America first” agenda, even if it doesn’t use that term. In Biden’s first few months in office, the CHIPS for America Act sped through congress. This act invests $52 billion in US microchip manufacturing in the hope that America will become less reliant on overseas semiconductors. In Britain, proponents of Brexit won their referendum partially on the promise to spend money domestically instead of sending it to the European Union’s centralized economy. But other shifts are less obvious and less politicized. For instance, in 2021, cryptocurrency’s market value hit $2 trillion for the first time. Many may not realize that cryptocurrency is a form of decentralization. But as Investopedia states, “A cryptocurrency is a form of digital asset based on a network that is distributed across a large number of computers. This decentralized structure allows them to exist outside the control of governments and central authorities.” *1

Use Emerging Technology to Its Fullest Extent

Technology has decentralized many industries, and more will be decentralized further. Looking at the internet in the 1990s, it was viewed as a place solely for nerds. Around 1995, while this view was still predominant, Jeff Bezos opened Amazon as “Earth’s Biggest Bookstore.” Thanks to his ability to become established in this decentralized technology long before anyone else, Amazon is now one of the world’s most successful companies. Bezos is now decentralizing governmental control of space. *1

As Bezos’s story shows, you don’t need to create decentralized technology to take advantage of it. And it would be best if you didn’t get caught up with the current perception of that technology. Bezos didn’t create the internet. He exploited it and waited for the rest of the world to catch up. Bezos didn’t care if nerds were the only people online. He knew the technology’s direction and its ability to disrupt the bricks and mortar books industry. *1

Never Mistake Decentralization for Disconnection

Decentralized economies are not disconnected economies. The UK’s exports to the EU are recovering, even with Brexit now in full effect. Decentralization leads to changing regulations and demand, but this does not cut off two economies from one another. It doesn’t create a situation like North Korea/South Korea. Everyone needs to look for the opportunities that emerge when two economies decide to decentralize from one another. The decentralization of economies will naturally create demand in some areas. *1

Use a Decentralized Workforce to Find New Markets

The coronavirus pandemic changed the way we go about our daily lives. Sadly, this means that talented people worldwide are struggling to find work. These people deserve to find new opportunities that don’t endanger them. And that’s where a decentralized workforce structure comes in. *1

Thanks to decentralization, having a presence in any emerging market is easier than ever. You could detect an opportunity in a growing city in one of the BRICS nations and begin recruiting an employee in record time, thanks to online hiring platforms like Upwork or Fiver. While hiring someone in a small town to sell a product is theoretically possible, the technology is hardly streamlined. But it’s getting easier. For instance, TaskRabbit, the app where you can hire people to perform dozens of jobs, has expanded from the USA to the UK, Canada, and several EU nations. *1

You can market your product to almost the entire world, no matter where you are. Since the pandemic changed our working lives, many of us have become remote workers. In essence, that makes these people decentralized workers. So why not take full advantage of this decentralization and use it to target new markets? If the office can be anywhere nowadays, so can the client. *1

This shows how decentralized workforces can lead to opportunities. Let’s say that, hypothetically, you want to start selling your product in Germany. You can begin the process with your local team members using online marketing. If there’s an interest in your product, then you can test the waters by hiring local workers via remote work apps. If it’s successful, then you can begin the process of making permanent hires. This is a decentralized approach to business expansion. You don’t need to start by opening an office and waiting for the opportunities to come to you. You can identify the opportunities first, see if they’re achievable, and then form a more permanent presence in your new market. *1

Why decentralized finance is a leapfrog technology

An estimated 1.7 billion people globally don’t have access to financial services, but 1.1 billion of those have access to a mobile phone. *2

It’s likely many unbanked people will have their first experience of financial services on decentralized infrastructure. *2

Decentralized finance is key to enabling everyone’s open access, participation, and opportunity in the new digital economy. *2

No technology better exemplifies the “leapfrog technology” phenomenon than the mobile phone, whose adoption allowed even the most underserved communities to forego the need to implement traditional telecommunications infrastructures like wire networks and landline capabilities. *2

DeFi technology, like mobile phones, has the potential to be a leapfrog technology, enabling the underbanked to bypass traditional finance and gain access to digital services and assets previously unavailable. *2

Who are the unbanked?

The unbanked are defined as people that don’t have an account at any financial service provider. This definition does not recognize informal sources of financial services that pre-date the modern monetary system, such as community savings groups, peer-to-peer (P2P) microlending, and other forms of social and community financing. *2

Estimates track that as much as 35% of total economic activity in developing markets happens in the “informal economy,” which is equal to trillions of dollars of “informal economic activity” operating outside formal financial services in a parallel system. Almost all of the unbanked live in developing economies with young populations. *2

What is decentralized finance?

Decentralized finance is a financial technology infrastructure that re-imagines financial services in a P2P model, one that is governed by computer code. *2

Traditionally, banks and service providers are gatekeepers to access services: one needs to apply and be approved to open a bank account, use a payment application, or access a line of credit. *2

While fintech technology companies have overcome the challenge of physical distance from traditional brick-and-mortar locations, accessing financial services is still difficult for those without formal government identification and proof of financial assets. *2

DeFi infrastructure offers “accounts,” savings and loans, payments, and investing in a model inherently based on technology and P2P, thereby disintermediating institutions. Capital is crowdfunded and community-sourced, financial instruments are software, and the game’s rules are transparent, based on code. *2

This creates an inherently open, public, transparent, neutral, censorship-resistant, and borderless financial infrastructure accessible anywhere in the world via smartphone and internet connection.

Decentralized finance has not been adopted by unbanked populations outright nor is it designed to serve them. But the data on cryptocurrency adoption gives us reason to watch DeFi adoption rates. *2

Emerging countries ahead on cryptocurrencies

Emerging countries are ahead of every developed nation except the United States in adopting, mining, and trading cryptocurrencies. Many crypto-hungry countries have a high proportion of unbanked residents: four of the seven nations with the highest concentration of unbanked adults are the countries leading crypto adoption (China, India, Pakistan, Nigeria). *2

Globally, even in developed economies with advanced financial services industries, such as the US, unbanked and underbanked populations have relatively higher adoption rates of cryptocurrency ownership compared to fully banked ones. *2

The unbanked today will never be “banked” – they will leapfrog directly into decentralized financial services. *2

The open, permissionless nature of decentralized finance

Anyone can create a blockchain wallet – the critical technology that enables anyone with a mobile phone and internet connection to access blockchain-native financial services and global capital markets via DeFi rails. *2

The blockchain-based digital wallet functions as an “account” to send, receive, save, and invest digital assets. This acts as a gateway to receive and transact in foreign currencies and get exposure to global capital markets. *2

It is no surprise that in economies like Argentina, Venezuela, and Nigeria, large swathes of the population opt to get paid in digital currencies and move wealth into decentralized digital currencies such as Bitcoin and Ethereum. The permissionless nature of crypto makes it the most diversely held asset class in the world. *2

DeFi improves upon existing P2P community financial models

Decentralized finance innovations on community-based financial structures can provide safer, more convenient, and reliable solutions that improve existing informal, social, financial infrastructure. *2

P2P exchange is already driving the adoption of crypto in emerging markets for people who do not have the ability to on-ramp via centralized financial institutions. DeFi-based models for savings and loans are likely next. Savings groups are a commonly implemented community-based approach for saving money and issuing loans to benefit those in the community. *2

A DeFi-based approach provides several benefits: digital payments are safer and more accessible to track than physical cash and manual ledger keeping. Automating payments and withdrawals ensures fairness and transparency for all members. *2

Digital community funds could be invested seamlessly, unlike cash, and savings communities no longer need to be limited to geography. All of this on-chain data creates traceable, auditable credit histories, which could potentially serve as a bridge to more significant amounts of capital from external borrowers. *2

The benefits of crypto universal basic income
The growing interest in crypto universal basic income is evidence of a widening realization that blockchain provides the ability to distribute money efficiently to people directly at scale, and decentralized finance offers efficient pathways for funding and allocating capital over time.

With more than one billion people living on less than $1.90 daily, these big ideas are gaining acceptance as a sensible business model for humanity. Recently, a range of different approaches has reached new stages of viability. *2

GoodDollar and Impact Market have collectively onboarded more than 500,000 members to non-custodial wallets and distributed crypto UBI, primarily from Nigeria, India, and Indonesia. Recipients have used the funds for peer-to-peer exchange, fund basic needs, and explore DeFi instruments such as savings groups. *2

These projects are bridging the gap between decentralized finance infrastructure, assets, and the underbanked and have viral potential to accelerate adoption. *2

Challenges to decentralized finance adoption
The real risks and challenges to decentralized finance adoption can’t be overstated. Financial literacy is a start, but it is not enough. While holding crypto in a digital wallet seems simple, DeFi products and assets today are not yet designed to serve vulnerable populations. Basic literacy remains a problem, and 37% of the world still does not have ubiquitous and affordable web access – a prerequisite for further progress. *2

The volatility of crypto assets also poses existential risks: with the possibility of losing 72% of its value in a year,
even the most mature cryptocurrencies pose a massive threat to those living pay cheque to pay cheque. Without clear regulations and guardrails, lack of consumer protection and market volatility will always pose a danger to DeFi adoption. Adoption depends on more than mega-trends. *2

The impact of leapfrogging to DeFi goes well beyond just removing the middleman. It enables open access, participation, and opportunity in the new digital economy. It also has the potential to make more accessible established financial principles and products, as well as empower communities with capital formation that typically have not had access to it. *2

Decentralized finance has laid the foundations of propelling a truly decentralized global economy that the unbanked and everyone else, can easily embrace and participate in. *2