Financial Rights and DeFi

May 1, 2019 · 9 min read
  • Our current financial system adds to income inequality
  • DeFi opens up the financial opportunities that have historically only been available to the wealthy to the rest of the population
  • VEVA is at the bleeding edge of this revolution and has pioneered a new financial structure to take advantage of the DeFi movement.

More than ever, we live in a stratified world. We’re simultaneously dealing with the digital divide, income inequality, and even broadly paint entire countries into “first-world” or “third-world” boxes. A disturbingly large component (if not all) of this is due to an imbalance in resource allocation. Some of us are wealthy, some of us are not, and the few in the middle are increasingly separating towards one extreme or the other. Visual Capitalist pins this squarely on centralization — the idea that most of our financial system is controlled by a relatively few entities — noting that, “the spoils have gone to the people who are best connected to the financial centers of the world”. Niharika Singh takes a different (although equally appropriate) tact when she focuses on the loss of economic freedom that comes along with monolithic entities acting as the gatekeepers to financial services. While there is no absolute, guaranteed solution, one of the most promising ways forward is through decentralized finance, or DeFi. But what, exactly, do we mean when we talk about DeFi? In this paper, we’ll run through a brief primer on this convoluted topic. First, we’ll explore the idea of decentralization, especially as contrasted with centralization. Next, we’ll look at our current financial model, including the issues, and start to figure out where we can begin to decentralize discrete components. Last will be an overview of where we at VEVA believe DeFi is heading, and our vision for this future.


Broadly speaking, centralization is something like “a concentration of power”. The easiest way to illustrate this is probably to use money. Consider a situation in which Alice has a certain amount of money to her name. She almost definitely keeps a good chunk of it in a bank, she may have some of it tied up in a car loan or mortgage, and she may keep a small amount of debt on a credit card. Say that Alice has an actual net worth of $1,000,000, and properly believes that she has a net worth of $1,000,000. This is all fine when everything is working smoothly — if Alice needs to prove the amount of money she has in the bank, or if she needs to access it, she can. But what if things aren’t working as they should? Imagine, however, what your recourse would be if funds were taken out of your account and charged to your favorite restaurant, a place you eat at a few times a month — but you know you weren’t there on that day, at that time. You were at home alone (conveniently, with no witnesses), and this restaurant is rustic so there aren’t security cameras or any other way to show who was or was not there that night. This charge was simply an error (or malice) in the bank’s record-keeping.

It’s your word against the bank’s, and the bank will win.

An objective outside observer will conclude that you probably ate at that restaurant, and are trying to cheat the bank. And this is the heart of centralization: there is one (or a similarly very small number) central authority, and this authority controls the records, the power, and/or the options.

Decentralization distributes this power. Imagine instead that your bank has one set of records (as they do currently), but every time you make a purchase, this same information is broadcasted to a high number of independent ledgers. It’s unlikely (functionally impossible) that all of these ledgers would have the same error at the same time, so if you wanted to dispute the above mystery restaurant purchase, you could. You could show that your bank is the only entity with a record of this transaction, which introduces a high degree of certainty that the bank’s records contain an error. These principles of redundancy, independent record-keeping, and a shifted, distributed source of authority underpin decentralization. And this goes beyond record keeping — let’s say an individual wanted to send money abroad. What are the options if a bank says “no”? The fact is, individuals have very little autonomy over their money. Their options are to either do everything themselves (think of the people who keep their life savings inside their mattress), or play by the bank’s rules. It’s hard to move money, get a business loan, or do pretty much anything else without a centralized financial institution.

Economic ledgers are just one example. Almost anything can be decentralized, and here, we’re mostly going to be talking about decentralized finance as an investment vehicle. We’ll take a deeper dive in the next section, but what’s at issue here is the fact that there’s a historic disconnect between the money, the product, and the little guys. The rich have the ability to use their wealth to “buy” more wealth, at the expense of everyone else. In this way, even abstract concepts like “funding models” and “capitalization” have become centralized. DeFi attempts to change all of this.

Decentralized Finance

This example may be familiar to some of you, but will likely resonate just as well with those who are hearing it for the first time. The United States has this idea of an “accredited investor”. For anyone who doesn’t know exactly what this refers to or the history behind it, Investopedia notes that “[t]he term originates from the English word ‘accredited’ which literally means someone who has been given special authority or sanction if they meet certain recognized standards”. In this case, the special authority granted is access to what can only be called ‘the good investments’. Functionally speaking, “accredited investors, unlike the general public, qualify to invest in hedge funds, private equity deals, venture capital funds, and other private placements.

In other words, this class of people gets “exclusive access to complex [read: better] investments” that are unavailable to the rest of us.

But what does it take to obtain this status? Are these folks ‘accredited’ because of their skill, their virtue, or some other merit? Sadly, no. Accredited investors are, essentially, people or financial entities that have a high net worth, or otherwise meet a set of prescribed fiduciary standards. That’s right — the test of an accredited investor is almost entirely financial. To map this onto our discussion of centralization, there is a core financial power that has been centralized — money is made by already-high net worth individuals.

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And soon, the definition will be changing to simply capture “an individual determined by the Securities and Exchange Commission (SEC) to have qualifying education or experience”, opening even more doors for subjectivity and government manipulation. This is just one example of how “the spoils” go to those who are already part of the “in” group. In contrast to this, DeFi describes, broadly, a world in which centralization does not affect the financial system. For instance, imagine living in a country (while this is hypothetical in that nothing in this paper is based on any state in particular, it also very much reflects reality for much of humanity) in which your money is subject to control by central authorities (banks or other financial institutions). This has several detrimental effects:

· A lack of access to important financial services. This includes banks (relatively safe fiat storage), interest-producing investments, even the credit/capital required to do things that many people take for granted, such as starting a business.

· The inability to move capital across borders. There are many ways for a government to block this — as a thought-experiment for those of us who believe that we could move money out of the country, how would we do this? Almost every solution requires a third-party middleman, whether this is a bank, a logistics company, or payment processor… all entities that have governmental levers. This ties into the larger idea of censorship-resistant transactions.

· Most importantly, a lack of any ability to control one’s financial future. When finance is centralized, we end up with arbitrary designations like “accredited investor”. This means that, while there are absolutely profits to be made on certain investments, most people just don’t have access to these opportunities. Similarly, since capital is tightly controlled, small businesses don’t have any real shot at making a dent in their chosen marketplace. Think about how difficult it would be to start, say, a profitable fast-food hamburger joint to truly compete with McDonalds, Burger King, Carl’s Jr., etc. Their advertising budgets are enormous, they deal with extreme economies of scale, and they have lobbyists working with them to shape regulations that are perfectly tailored to their needs. The little guy may be able to carve out a bit of local space, maybe even open a second store, but the odds are very, very much against things going much beyond that.

Decentralized Finance works toward fixing all of the above. Cryptocurrencies, which are often used quasi-synonymously with anything decentralized, are just one tool that is employed to help build a DeFi infrastructure. They allow for anyone to hold their own finances in a hardware, paper, or even a brain wallet, they offer quick and permissionless financial transfers across borders, and they provide for new funding models, benefiting consumers, small businesses, and non-accredited investors alike. In a more general sense, DeFi can be thought of as bringing a number of much needed dimensions to the financial space by being:

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(chart data from

The big idea is to take “finance”, whatever this may encompass, out of the control of the few and put it into the hands of the many. Going beyond cryptocurrencies, one great way to do this is by restructuring things like venture capital. Our current system is set up so that massive amounts of money can be had simply by making the right investments. Unfortunately, these investments are only available to a select group of people. It’s exactly this problem that VEVA set out to fix.

The Future of DeFi

DeFi has the potential to disrupt much of our modern financial structure. As cryptocurrencies gain adoption, individuals will be in control of their own money; and as dApps take off, financial services will move onto the blockchain. At VEVA, we believe that one of the first applications of DeFi will be in the investment space. We are at the bleeding edge of this — in anticipation of the DeFi era, we’ve created and championed the digital asset investment trust (DAIT) structure. Loosely modelled on existing REITs, DAITs are designed to fund small businesses that have capEx needs by effectively crowdsourcing their capital.

Our initial model focuses on small wireless broadband providers, and we chose this field specifically because of how well it matches up with an ideal DAIT. Fixed wireless broadband is extremely efficient, reliable, and powerful, with very little in the way of overhead — except for capEx. The social environment is ripe for change (how many of us actually like our internet provider?), and equipment is getting cheap enough that providers are cropping up across the country.

Unfortunately, it’s a real David and Goliath situation: small providers just don’t have the resources that the incumbents have.

This is where VEVA comes in. We’ve created DAITs to leverage the power of decentralized finance to help fund these providers. We want to give them the advantages that the Comcasts of the world have, while freeing their internal operations up to focus on their core strengths. But that’s only half of our mission. We aim to empower the Davids with crowdsourced capital while also providing the general population with the kind of ROI previously only available to “accredited investors”. Small businesses win, small investors win, and the Goliaths finally see a little competition. We think this is the most fitting way to make DeFi a reality — and you can learn more at

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