OpenFi: Programmable Money for Everyday Use
OpenFi is the movement to build an open source, interoperable, and modular financial system. OpenFi holds the promise to help the crypto industry cross the chasm: OpenFi products are built for ordinary people and are already better in an order of magnitude compared to their fintech equivalent. In this article I want to show how they are better for both consumers and businesses and give concrete examples.
However, arguably the biggest opportunity for OpenFi is the significant cost and scaling advantages it creates for entrepreneurs. There is first evidence of founders sharing this thesis, as major ex-fintech founders and C-Level executives have jumped ship — mostly unnoticed — to build on self-custodial rails, raised 50m+ rounds (e.g. Noah or Bridge) and been building in stealth for two years to finally release their product now. Similarly, OpenFi adoption in markets like Latam and Africa (e.g. Celo / MiniPay having over 3m users) shows early signs of a larger trend that might equally change finance, and web3, as we know it today.
Open Eats Closed for Breakfast
OpenFi is an emerging vertical bridging DeFi and TradFi that aims to build interoperable, open source financial modules. Its attributes are just shaping up, but we define OpenFi as a) a set of interoperable tools that enable b) self-custodial management of funds and data, c) working as composable and open-source building blocks d) to enable more efficient real-world financial applications.
In parallel we see OpenFi as a movement that prioritizes practical solutions today that deeply value open financial systems, but also see the strategic advantages in building open source. Instead of a revolution, it is an evolution to shape the financial system towards user self-custody and open source development. We can only improve on the solutions that we have built, not the ones that do not exist because we didn’t want to implement an imperfect system. We can only change user preferences if we have regular users using our solutions.
The OpenFi ecosystem will change the financial landscape like open operating systems changed the trajectory of personal computing. Instead of having inhouse-only or vendor-curated products that consumers can use when signing up, supply for users will explode, just like the number of available software products did in the mid 1990s.
This will have enormous effects for consumers on a) lowering fees, as self-custodial rails reduce intermediaries, b) convenience, as products can be mixed and matched across different vendors, as well as c) general financial inclusion. I will give concrete examples below.
However, OpenFi’s biggest impact and opportunity is for entrepreneurs and the ecosystems they operate in. Counter-intuitively, consumer finance is one of the few still existing locally-entrenched markets. Similar to the publishing market in the early 2000s, before it was disrupted by social media, the financial services market is still dominated by few national champions in each country that hold significant market share and offer uncompetitive tech and products. It’s a market ripe for the taking.
This will be changed by OpenFi. Let’s take Picnic as an example: The Brazilian OpenFi interface is building its product with only five people. Unlike its fintech rivals, it doesn’t require a license or a compliance officer, because it can rely on the OpenFi modules it integrates. For Picnic it is both cheaper and faster to go to market on a magnitude scale. Picnic also scales better: By integrating Monerium, Picnic is now able to offer a full bank account, including an IBAN, to European users. Going beyond the pond took N26, a popular fintech app, six years and 460m USD in funding. In comparison, Picnic has been working for two years on the product and spent under 600k in funding and grants, coming from the Ethereum Foundation, among others. Even though the comparison may be skewed and incumbents would pay less today or could get by with less funding to become cross-continental, the magnitude difference in cost and significant difference in scaling speed still persists.
So what is next for Picnic? Maybe working together with one of the remittance companies that offer crypto-to-fiat payments directly into someone’s bank account in e.g. Nigeria or Mexico. Remittances cost the sender on average 6.35% in fees, according to the World Bank. For OpenFi companies like due.network it costs 0.3%. Maybe Picnic implements a 8% yield on a checking account like Zeal is doing, or an asset-backed stablecoin like Angle or Midas. For liquid saving products, my bank is offering me a 1.75% yearly return, and that’s even above average. Or implement a card provider like Kulipa or Gnosis Pay. I could go on, but you get the idea.
Composability across OpenFi solutions is already interoperable to a large degree, or can be made interoperable by adding bridging infrastructure like LI.FI offers, convenient self-custodial accounts from Safe, and identity portability, unlocked by our own idOS, which means that the integration effort is not comparable to building a new product in house from scratch.
Due to the interoperable and open nature of these financial modules, the speed of innovation will accelerate iteration cycles and outpace anything fintech has ever seen or will ever be able to match. These new breed of OpenFi products that succeed in such an environment will make the fintech tech stack look like the one of a regional savings bank.
Let’s give a concrete example of rapid innovation in open source environments: I am the owner of a Gnosis Pay debit card that I love and I will switch my finances completely over once I can use my Monerium bank account in tandem. But there is one thing holding me back: When someone watches me buying a coffee and sees the bill, they will be able to trace back my account and see all transactions. To be clear, this is not a Gnosis Pay problem but one that the whole OpenFi space needs to solve. Now unbeknown to Gnosis Pay, Aleph Zero is working on a solution to that problem called Common. Common is not just a very slick OpenFi app, but is building out a compliant mixer under the hood, allowing for transaction obfuscation that Gnosis Pay could use. Maybe Gnosis Pay is building a solution themselves right now and I just don’t know. What I wanted to say is: In an open source financial world, anyone anywhere can surprise you with a solution and contribute to an ever growing tool set.
To summarize: OpenFi is dramatically cheaper, it blitz-scales internationally and will have an abundance of available products that will gradually outpace fintech. It gives builders tools that are a magnitude better in most ways compared to fintech rails, let alone traditional banking products.
The Browser Moment
When the browser was invented, things changed for the internet and the world: It pushed open a window leading to an abundance of information and a decoupling from national TV stations and newspapers. This window, once opened, could not be closed shut. It made the advantages of the internet available to the many, but back then few people could imagine what this new tool might be used for. Today we know that most of it was for the better, and some of it was not.
There are similarities and differences to OpenFi. We are at a similar point; the tools are there, but the content and applications are not. We do not yet know how people will use these new tools and what new products we will see. We do know that the world is going to change and that there is no way back.
There are differences as well. Unlike the publishing industry, at least the fintech industry and even some banking behemoths have learned from the past and are adopting crypto rails in a serious way. There are fintech companies like Paypal issuing their own stablecoin alongside Société Générale and Deutsche Bank.
When we look at the entrepreneurs building OpenFi, we see a different type of people in the mix in comparison to your usual crypto founders. It might not be true for everyone, but the early type of crypto builders are strong on the conviction side, but might lack the skills or even interest to commercialize and scale a product. But we can certainly say that there is a new set of people joining the space that have a rich set of experience building some of the most successful companies in fintech. C-Level and leadership from Spendesk, Revolut, and SaltPay suddenly founded OpenFi companies like Kulipa, Zeal, and Gnosis Pay, respectively. These guys are not satisfied to tinker around for seven years like we did until reaching market maturity — they want to build products today that scale to the masses.
It’s not just fintech founders suddenly dabbling in OpenFi. When Celo recently got their long overdue applause from Vitalik Buterin for bringing over 3m users on-chain, one crypto OG posted “have never met a single Celo user”. What was probably meant as a burn is exactly the whole point: Celo has built an application with the Opera team called MiniPay that doesn’t cater to the privileged, tech-savvy crowd, but to ordinary people… in Africa. The point I am trying to make is that making financial technology accessible to people will create solutions to problems that ‘we’ didn’t even know about.
It will be interesting to see what products will prevail and who will hit a nerve. Just like in the browser times, the early winners might not be the ones to stay. Who would have thought in the mid to late 90s that Yahoo and AOL would not be relevant ten years later?
Now Is the Time to get Involved
The OpenFi space is just starting and there is plenty to be built. We are still missing key parts of an autonomous financial system, like decent risk scores, an arbitration layer and title enforcement, which would unlock critical products like real estate loans and under-collateralized lending in general. We are missing major B2B markets that might be out of sight, like letter-of-credit financing. We are very early.
What can you do?
- If you are around, join us at Devcon for the OpenFi Summit on November 12
- If you are an entrepreneur building in and around OpenFi, reach out and tell me about it
- If you are an investor that wants to invest in OpenFi companies either as an Angel or VC, let me know
- If you are an ecosystem interested in bringing OpenFi products live, reach out
The biggest opportunity, however, lies in the collaboration of the people building in OpenFi. The power dynamics of open source only start to kick in when these financial modules are truly interoperable. That is why we are trying to bring the space together and make it visible, both digitally as well as physically, at the OpenFi Summit at Devcon in November.
About the Ecosystem Map
Mapping the ecosystem wasn’t easy: We tried to highlight OpenFi companies but also wanted to show the interoperable pieces at play. We definitely included a lot of projects that don’t satisfy the strict definition above but we saw enough evidence of them gradually transitioning towards these criteria. We for instance didn’t include centralized exchanges. While DeFi protocols are an important part of the OpenFi thesis, for the OpenFi Ecosystem Map we decided to limit the number of protocols we show to the most popular ones as there are already extensive DeFi ecosystem maps out there.
For simplicity, we decided to show each project only once even though they might have fit into two or more categories.
We are aware that e.g. especially on the side of the on- and off-ramps there are significant differences in the degree of interoperability and self-custody. We started with a more holistic approach in favor of showing a broad overview of the current ecosystem for the first time. In future ecosystem overviews, we would apply a stricter filter especially regarding the degree of permissionless interoperability.
OpenFi Resources:
- Article Crypto News: Is OpenFi the Missing Link Between Crypto and Mainstream Finance?
- Article MPost: How Zeal is Making Advanced Crypto Technology Accessible to Everyone
- Article Cityam: OpenFi, Fintech’s End Game
- Article Blockworks: Can crypto fully realize the open banking fintech
OpenFi Past events
The OpenFi event in Brussels during EthCC24 brought together key innovators building the future of decentralized finance. Attendees explored cutting-edge developments in OpenFi infrastructure, with panels and keynotes from web3 leaders at Celo, idOS, Safe, and more. The event highlighted how OpenFi is bridging decentralized tools with mainstream finance, showcasing projects aimed at creating self-custodial bank accounts, debit cards, and savings products. With a rooftop venue near the Grand-Place, guests enjoyed networking, discussions, and a lively evening with music, food, and drinks. Aftermovie, watch it here. Panels and Keynotes recordings, watch here.
OpenFi Asia 2024 brought together global leaders in Open Finance to explore the latest developments in decentralized payments, banking, and infrastructure. Inspired by OpenFi @EthCC, the event featured insightful sessions from co-hosts such as Headquarters (HQ.xyz), Safe, BasedApp, Bridge, and Portal. Attendees had the opportunity to network and discuss real-world DeFi applications while enjoying free-flowing food and drinks in Singapore. It was a must-attend event for builders and innovators shaping the next layer of financial infrastructure. Aftermovie, watch it here.
