Engaging in the traditional financial market has become less appealing to consumers and institutional investors as of late. New opportunities are plentiful, with decentralized finance getting a lot of attention. However, that new movement is not without its risks and flaws either. Education and accessibility are crucial to make DeFi more accessible to the upcoming inflow of retail investors.
The exploitation in centralized finance
For decades, consumers and institutional investors have explored the many different options presented to them in the financial world. This approach has worked out rather well, as one could even earn passive revenue on their savings account. Today, things look very different, as many banks charge negative interest rates and continue to exploit their customers.
Another problem compounding the lessening appeal of centralized finance is the ongoing impediments in the industry. More specifically, banks are forced to settle lawsuits regularly, mostly due to their wrongdoing. This ranges from opening accounts for clients without their knowledge, masking products under different names while providing the same service, money laundering and so forth.
Despite all of this, many people remain loyal to their bank or other financial institution. Or that used to be the case, as decentralized finance has a lot of people interested today. Unlike traditional finance, DeFi has no exorbitant fees, unfair terms or financial exclusion. Instead, it is a movement that aims to bring financial services to everyone regardless of their current access to these products.
Making DeFi more accessible
While it may seem as if decentralized finance is destined to disrupt traditional finance, there is still a lot of work to be done. In its current state, DeFi primarily caters to users who have sufficient knowledge of the cryptocurrency market. Unfortunately, the crypto industry remains a niche market even today, despite prices for Bitcoin and Ethereum moving up quickly in the past few months.
Going from “owning Bitcoin” to “decentralized finance” still involves a steep learning curve. DeFi remains incredibly confusing for the average onlooker, as there are no viable “guides” on how to prepare yourself for these new financial opportunities. Every existing guide assumes the reader already knows the ins and outs of cryptocurrency, which is usually not the case.
Education is the first big step
Wading through the complex nature of decentralized finance requires clear and concise education. There is a rising need for educational platforms that address beginner levels of investing. Publications contributing educational content around DeFi include DeFi Prime, DeFi Pulse and The Defiant newsletter. All have noted significant growth throughout 2020 and early 2021. Educational initiatives like GoodFi have been created together with industry experts like Chainlink, Aave, Radix mStable and others with a goal to lower entry barriers to decentralized finance by educating people on cryptocurrency and the opportunities the broader industry provides.
Ultimately a good goal for DeFi would be for 100 million more people to deposit at least $1 each into decentralized finance by 2025. It may seem like an easy goal, yet convincing millions of people to partake in this industry isn’t easy. Many people remain unconvinced by cryptocurrencies in general, and they will likely feel the same about DeFi.
We as an industry need to acknowledge that things need to improve to be taken more seriously by the masses. Making a global impact with complex structures and technologies and requiring the use of cryptocurrencies warrants clear and concise education. A big catalyst for launching more educational initiatives now is the recent WallStreetBets/GameStop saga. People worldwide suddenly found themselves in a position of power to make the financial market dance to their tunes. It depicts the need to make financial markets accessible to everyone, yet the current financial industry doesn’t always allow this to happen. This became apparent when the trading of GameStop stocks was halted by several providers to “protect larger investors.” It serves as an excellent example of how unfair the financial industry can be.
Creating a level playing field
At its core, the financial sector can operate without gatekeepers or centralized intermediaries. The DeFi industry has shown this is possible, even though the industry is still in the early stages. Creating an environment where anyone can safely borrow, lend and trade directly is possible, but the educational aspect comes first.
As the public perception of traditional finance keeps taking blows on the chin, it is a matter of time until large groups begin exploring other horizons. Investing in cryptocurrencies has given many a taste of what financial freedom can entail. However, it is crucial to understand this is only the first step along a long road toward achieving that freedom.
There is a lot more to DeFi than just owning Bitcoin, Ethereum or any other crypto assets. While that does grant one access to decentralized finance, the educational initiatives led by industry leaders will help explain how you can use these assets for more than speculative purposes. Through education, research and guidance, a new era of finance may just be around the corner.
Piers Ridyard, CEO of Radix. A Y Combinator alumni, Ridyard joined Radix after exiting his previous company which built DLT-based deal rooms for clearing syndicated insurance contracts.