Chapter 2 — Problems & DeFi
The meteoric rise of DeFi pushed over USD $14 billion into stablecoins in 2020, and over $24 billion into swapping in September 2020 alone. And with wallet addresses cresting over 100 million users, with over 1 million on DeFi alone (citation link), the demand is parabolic. Similarly, the first generation of fintech saw companies like Coinbase, Revolut, Monzo, N26, Plaid, Chime, Transferwise, and others offer new digital financial services to grab market share from the slower, traditional financial institutions (FIs) — and garner multi-billion-dollar valuations in the process. The simple digitization of the banking system is ushering in an era of instant payments. In short, with digitization and decentralization, we are witnessing a revolution in finance and all value transfer.
Everest represents the next generation of blockchain + fintech infrastructure platform, combining the best of both worlds.
Blockchains like Ethereum, where 96% of DeFi is currently transacting, were not designed to handle the speed, cost, regulatory, UX and reach requirements needed to go mass market with DeFi or run a “real economy”. The fragmentation on a technical, regulatory and regional basis is solvable by Everest to create a true mass market.
SCALE: Layer one protocol suppliers like Ethereum can’t process transactions quickly or cost-effectively. According to Vitalik, “The L1 is nearly unusable for many classes of applications, and there’s no non-L2 path that can get us to scalability in the short-to-medium term” (citation link), and that is likely for years to come. In September 2020, we witnessed networks get overwhelmed with transactions taking 24 hours or more to process, and cost $5–40/transaction1
COMPLIANCE: And despite all the hype and transactions, few are taking regulations seriously — “56% of them (exchanges) did not follow KYC guidelines at all despite anti-money laundering (AML) regulations. The highest number of such exchanges are in Europe — a region renowned for stricter regulations. However, 60% of European Virtual Asset Service Providers have deficient KYC practices……21 decentralized exchanges, DEXs, found that a whopping 81% had weak, or no, know-your-customer (KYC) practices…..didn’t think DeFi would escape regulations for long.” (Citation Link) Even initiatives like Stellar and Ripple only perform inter-bank settlement (they rely on custodians to handle the regulatory issues, KYC/AML users, and don’t offer access to multiple services). The DeFi protocol developers can’t do custodianship, verify identities, or do fiat-in themselves. Akin to BitTorrent, inventor of p2p transfer protocol, which was legally able to produce and market a protocol, yet unable to legally distribute content or transfer value, DeFi requires an entity that will (a) comply with legal + regulatory rules, and (b) on-board the hundreds of millions of users who are clamoring for the benefits of DeFi.
UX and REACH: Consumers demand a seamless mobile experience to manage their money where they want, when they want, and into whatever investment or account they want. Consumers are demanding and moving to financial platforms that meet their demands of user-centricity, mobility and connectivity.
They want to easily move money and crypto between savings, checking, investment and other accounts, without the hassle of mapping wallets, converting four types of crypto currencies to be potentially rewarded with a fifth reward token. We cannot expect users to understand TCP/IP, managing their own server farms or program hard-drive backups. Simply put, consumers want to easily and for-free (not charged 2–5% as many fiat on-ramp providers do) transfer from their bank account into something that earns them more yield. And Many consumers simply want to hand cash to an agent (yes, over 80% of the world still runs on cash; and yes, even industrialized economies like EU are over 65% on cash).
Currently, fiat on-ramps are limited to just that function. And all the current players are limited to where they secured a license or regulatory approval (i.e. 30 US states, or just Eurozone). Yet, as Everest is demonstrating, the DeFi market does not need to function in such a fragmented way, nor be limited to regional, usually industrialized, markets.
In sum, by its very nature, blockchain and DeFi can’t get to mass-market with a single ecosystem that cost-effectively and seamlessly allows users to come in and out of crypto and fiat and various savings, lending, swapping, investing vehicles. Not one single company is currently capable, legally or technically, of putting it all under one roof — until Everest!