Crypto-Powered: 10 Points that Highlight the Magic of DeFi

Most financial services that DeFi offers already exist in the real world. So why does it need to be on a blockchain?

Published in

Hightop

7 min readJul 22, 2020

This is the final post of Crypto-Powered — a new series that examines what it means for Genesis Block to be a digital bank that’s powered by crypto, blockchain, and decentralized protocols.

Earlier in this series, we looked at some of the most promising DeFi use-cases already in the wild. We explored categories like lending, investment, insurance, stablecoins, payments, and more. And before that, we gave a primer on Bitcoin, Ethereum, and DeFi (decentralized finance).

So now that we’ve gone a little deeper down the crypto rabbit hole and we’ve done this whirlwind tour of DeFi, the natural next question is: why does any of it matter?

Most of the financial services offered by DeFi protocols already exist in the real world. So why does it need to be decentralized or on a blockchain? What’s the big deal?

Today we go through 10 points that highlight the magic of DeFi, and why it matters. And hopefully, it becomes clear just how big of an unfair advantage this technology is for Genesis Block. It’s our superpower as we compete against big banks and fintech unicorns. Alright, let’s dive in!

1. Global Pipes & Bridges

In traditional finance, each country or region has its own currency, infrastructure, and regulations. With blockchain technology and more specifically DeFi, the world is instantly connected. These decentralized protocols serve as the pipes and plumbing that plug the different economies together.

The internet completely broke down the walls & borders for information and news. DeFi is doing the same thing, but now for money, commerce, and financial markets. We’re now part of a global, digital marketplace that can finally transact with each other— there’s a common set of rules and protocols that transcend cultures, languages, and borders.

Jack Dorsey recently shared his own bullish insights on this future.

2. Efficient Markets & Liquidity

While the crypto ecosystem is still small when compared to traditional financial markets, it is growing quickly. As participation continues to mature, it will unlock enormous liquidity in the global markets.

Imagine the possibilities for mostly illiquid markets like real estate, collectibles, or private company stock.

This creates new opportunities for people. Imagine a farmer in Mexico helping a young family in Florida buy their first home. Or a coal worker in China participating in micro-finance loans in Africa. With liquid markets, they can easily swap in and out of investments depending on their financial situations. They won’t have to worry about long periods of no liquidity — which traditionally only favored the wealthy.

Additionally, more liquid markets lead to great efficiencies. Defi, like the internet before, reduces transaction costs to the bare minimum — just the tech/infrastructure costs. The high cost of participation is removed.

This new, unlocked liquidity will lead to a much more efficient, vibrant, and healthy global economy.

3. Earning Opportunities & Value Creation

Basic crypto allows you to move and store value. With many of these DeFi protocols, you can actually create and earn value. You can share in the upside and success of these new micro-economies by earning tokens for your contributions.

For example, with DeFi protocols like Maker or UMA, you can be rewarded for voting and participating in high-level protocol decisions. With Synthetix, Compound, and Uniswap you can be rewarded for providing liquidity to the network. With Cosmos or Tezos (and soon Ethereum), you can be rewarded for helping keep the network stable and secure.

These new decentralized protocols and the work required to grow and cultivate them can be incredible earning opportunities for people all over the world. Value isn’t just moving, it’s being created and growing. This is an entirely new paradigm for work and earning income.

It’s actually really incredible to think about.

4. Equal Access & Economic Freedom

Because DeFi protocols are decentralized and on a blockchain, there are no gatekeepers. No government or bank or corporation can censor these protocols. Everyone has equal access.

You can be a user who needs financial services. You can be an entrepreneur who has a great idea and decide to launch your own protocol. You can be a worker who wants to earn income by helping and contributing to these new micro-economies. All options are available. Nobody can stop you.

People all over the world — whether from a favela in Rio or living under oppression by an authoritarian regime — can participate in this new, digital, permissionless global economy. This creates more economic freedom, which changes the world.

5. Composability & Interoperability

Many of these DeFi protocols leverage other DeFi protocols. They are like lego pieces — you can mix, match, connect, combine… and create an entirely new, exciting thing! This is called composability and it’s one of DeFi’s greatest strengths.

As Genesis Block decides to add additional features (more financial services), it becomes much easier because most of these protocols are modular and integrate nicely.

6. Regulatory Windows

While cryptocurrency like Bitcoin is starting to become more regulated in developed countries, many of these newer decentralized technologies have not, like DeFi (financial services built on smart contracts).

This technology is at the bleeding-edge of innovation. It’s a new frontier that is being explored and developed at an incredibly fast pace. As a result, most governments around the world have not yet fleshed out how or if it will be regulated. For many countries around the world with fewer resources and less-developed regulatory infrastructure, it would be dizzying to even try.

This creates a unique window of opportunity for builders and entrepreneurs. They won’t get bogged down by some of the outdated laws that slow them down in legacy finance.

For updates on crypto regulation in the US, CoinCenter is a great resource. So far, US regulatory focus has just been on cryptocurrency or securities more generally.

7. Decentralized Governance

The companies behind top DeFi protocols like Compound and Maker have relinquished their power and turned it over to the community. The community of token holders are now in charge of proposing, approving, and voting for decisions and updates in the protocol. This is called decentralized governance.

Of course, not all protocols are truly decentralized in their management or governance. But this is a trend we’re seeing more and more of. This more democratic style of governance creates a system of checks and balances, hopefully leading to a more stable, secure, and resilient protocol.

There’s a great post recently from Jesse Walden where he describes this as The Ownership Economy.

8. User Interface Flexibility

Because these protocols are low-level, there can be a variety of product experiences, interfaces, and designs built around them. It’s similar to interacting with web APIs, except these are smart contracts on a blockchain.

If you don’t like the design of an app that interacts with a specific protocol, you can build your own.

9. Transparency & Auditability

These protocols are on the blockchain for anyone to inspect, analyze, and review. This transparency can create more trust and confidence for users. Anyone can discover a bug or whistle-blow malfeasance.

In the real world, bank customers typically have no idea what’s happening under the hood. It’s a complete black hole. In DeFi, the code is open-source. You can verify it’s doing exactly what they say it is.

10. Autonomous & Open 24/7

While the developers can sometimes update the protocol or fix a bug, these decentralized applications are not managed day to day by a company or its employees. These smart contracts run independently and automatically on the blockchain — enforced by policies and rules written in the code. DeFi protocols aren’t closed on weekends or bank holidays.

Can you imagine a bank that was run by robots and open 24/7. That’s DeFi.

Hopefully, it’s becoming crystal clear that a crypto-native company — if it can substantially leverage these game-changing DeFi protocols — will win the consumer finance market. It will disrupt Wells Fargo, Goldman, and Bank of America. It will become the bank of the future.

Which crypto-native company is best positioned to win? Who can abstract away the complexity, deliver a world-class product experience, and take it to the world?

We obviously believe it’s us at Genesis Block. Time will tell.

I hope your imagination is running wild with possibilities like mine is. The potential of this tech is incredible. When you consider both the broad spectrum of financial use-cases that DeFi offers and the enormous value that is unlocked through these protocols (as outlined in today’s post), you can see just how big of an unfair advantage this is for Genesis Block.

As long as we’re building on this foundation, we’re out here playing 3d Chess while big banks & fintech companies are playing Checkers.

This is mic-drop weaponry. These are superpowers. This is what it means to be a digital bank that’s powered by blockchain technology and decentralized protocols. This is what it means to be crypto-powered.