Why FinTech and DeFi need each other

TL;DR Decentralised Finance (DeFi) is the recreation of financial products (e.g. derivatives) and services (e.g. lending). DeFi will innovate far faster than traditional finance, but will be unable to break out of its niche without the trappings of modern FinTech.

What has FinTech achieved in the last decade?

I am extremely grateful for FinTech. Aside from providing me employment for the last years, the use of banking and financial services are far more enjoyable now than they were a decade ago. When I first moved to Berlin, getting a bank account was a bureaucratic nightmare of paperwork and bad German. Now I use N26 as my bank account, TransferWise to send money abroad and PayPal to settle up, all from my phone.

  • TransferWise, Venmo — building a ‘layer 2’ solution because the underlying banking service doesn’t work well (SWIFT, Interbank payments)
  • Unbundling & Rebundling — modern insurance apps like GetSafe are providing a service that was previously wrapped up in to a big company. Other FinTech’s wrap up these services into a platform like Revolut.

Why has FinTech been unable to disrupt infrastructure?

While there are players who are focusing on infrastructure e.g. Mambu, Thought Machine who are building modern, composable core banking banking systems. These systems ultimately must implement schemes like SEPA & SWIFT. The progress that can be made by a single company is limited to the extent that our financial system is regulated and interconnected.

Enter blockchain

Blockchain and banking are completely different. Blockchain is grass roots, open source, and didn’t take geographical restrictions or the status quo into consideration.

Decentralised Finance will be the third killer app

Decentralised Finance (DeFi) is the creation of financial products and services on public blockchains. If you want to take a loan in the real world, you could take a bank as a counter-party and borrow against it. In DeFi the counter-party is the protocol itself, written as a set of smart contracts (immutable code) on the blockchain. This means it’s transparent: you can see how the products are created and funds are managed. It’s also decentralised in the sense that an individual, government or company couldn’t just come in and shut the thing down.

The current use cases of DeFi

DeFi is definitely entering hype mode and we see a number of use cases evolving.

Source

DeFi Trends

2020 has been cited as the Year of DeFi. There has been a tremendous growth in a number of key metrics:

https://defipulse.com/

DeFi will innovate faster than traditional finance

Of all the benefits of DeFi, for me there is one that by far dwarfs the others: the rate of innovation.

Why DeFi needs FinTech

DeFi has a massive usability problem. If we define adoption as:

Taken from here

Bitwala aims to bring DeFi to a larger audience

Bitwala aims to bring DeFi to the early majority by acting as a guide and curator through this cambrian explosion of innovation. Today, our customers can buy ETH directly from their bank account and onboard into DeFi. As the ecosystem matures, we will continue to democratise access by making most pertinent use cases available to our users in a safe, easy and meaningful way.

Startup advisor | Co-Founder & CEO/CTO @Nuri