Empowering underserved communities is the most effective way to lift people out of the cycle of poverty in a truly sustainable way.
There are myriad misconceptions about decentralized finance (DeFi) that have contributed to a widespread misunderstanding of what this technology really is. Many people falsely accuse this emerging industry of being an opaque set of systems that serves as a means of making the rich richer while enticing retail investors to stake their money. However, this couldn’t be further from the truth.
In recent weeks, the market has seen centralized financial institutions in the crypto space go under due to their inability to successfully marry decentralized financial tools and a centralized financial model.
Despite these failures, truly decentralized finance looks stronger than ever. That doesn’t change the fact that these are disappointing results that have left many people in a vulnerable position, wondering when they will get their money back.
The Most Economically Vulnerable Have a Multitude of Barriers to Creating and Maintaining Their Wealth
Centralized entities, even in cryptocurrencies or any corporation, in a perfect world, would invest, lend, gamble, and collect returns without having huge holes in their balance sheets that require mergers and acquisitions by larger entities and liquidity providers to fix.
Unfortunately, these institutions are not transparent with how they conduct their business, and clients must put their trust in the people running the corporation to handle their assets safely.
This lack of clarity between institutions and their clients has been a problem, especially for the most vulnerable, since its inception. The consequences have been felt time and time again.
The 2008 global financial crisis, in particular, is a series of catastrophic failures that affected people around the world. But on a day-to-day basis, the most economically vulnerable are subjected to a multitude of barriers that constantly inhibit their ability to create and maintain their wealth.
There is a staggeringly large population of underbanked citizens in the world. According to a study by Global Findex, approximately 1.7 billion people around the world do not have access to a bank. High fees and opening minimums are cited as reasons among the unbanked for not being able to open accounts and participate in the current system.
As a result, the unbanked and underbanked are forced to use means such as prepaid debit cards, money orders, check cashing, or payday loans, which often carry high-cost fees, thereby perpetuating a vicious cycle of economic inequality.
Cryptocurrencies and Decentralized Financial Technology: an alternative
Cryptocurrencies and decentralized financial technologies offer a new way for these vulnerable populations to access financial tools without the traditional high barriers to entry.
Cryptocurrencies and DeFi protocols may be viable options for those facing racial discrimination and class bias in the banking system. With everything being done online, anyone with internet access can open a cryptocurrency wallet, and access is 24/7, making these tools tremendously accessible to everyone, regardless of socioeconomic status.
Breaking down the barriers between vulnerable populations and their access to wealth is a key step on the path to creating a better world. Empowering underserved communities is the most effective way to lift people out of the cycle of poverty in a truly sustainable way. Decentralized finance technologies are the tools that people can use to break the systemic chains that have kept them trapped for too long.
By Audy Castaneda