What defines a movement?

Barely a year has passed since decentralized finance (DeFi) began gathering steam as an area of application for blockchain and many members of the community have started to debate about where things might be heading.

Blockchain enthusiasts are known for boasting about the technology’s potential to “bank the unbanked” but many now believe the underserved may not be the primary audience served by DeFi. Spencer Noon of DTC Capital summed up the sentiment perfectly in his tweet:

Whether or not there’s a legitimate case for financial inclusion being a problem that DeFi can help solve, there’s plenty we can say about what DeFi is and what it isn’t.

What DeFi Isn’t

When it comes to DeFi apps, access does matter: if an application would become unavailable in the event that the company behind it shut down or stopped supporting it, then the application can’t rightfully be called “decentralized.”

Making sure an app is available, however, isn’t the same as making sure it’s inclusive.

Noble as the goal of financial inclusion may be, many are finding it out-of-touch with the reality of what’s being developed in the world of decentralized financial applications.

Coindesk Advisor and Primitive Ventures Founding Partner Dovey Wan slammed DeFi startups pitching solutions for “banking the unbanked” without actually bothering to talk to any unbanked individuals:

None of this is to say that banking the unbanked isn’t important. According to the World Bank’s Global Findex Database, 1.7 billion people — roughly one-third of the world’s population — remain unbanked and lack access to basic financial services.

Many cryptocurrency fanatics would be surprised to learn that in many cases, banks themselves are actually the ones leading the way in banking the unbanked. After all, they have a vested interest in attracting and retaining new customers.

So, if we set aside financial inclusion as a goal of DeFi, what’s left?

What DeFi Is

In the same way the Internet allowed people to share information from one side of the world to another and create entirely new ways of doing so (blogs, tweets, podcasts, etc.), blockchain allows us to instantly exchange value across the world and create new ways of doing so.

DeFi may not be the movement that “banks the unbanked,” but it does represent an early exploration of new methods for sharing value that society may eventually come to embrace.

As outlined on the DeFi Network website set up by the companies that pioneered the DeFi movement, the three principles of DeFi are Interoperability and Open Source, Accessibility and Financial Inclusion, and Financial Transparency.

To have any chance of supporting goals like transparency and inclusion, we first need to define standards for interoperability to guide the development of open-source, decentralized, Web3 technology.

The common description of various DeFi products and protocols as “legos” demonstrates an implicit appreciation for the importance of interoperability.

DeFi products and services have helped users generate impressive returns, manage their digital assets with greater ease and security, and retain their financial sovereignty in extreme cases of misfortune.

Conclusion

As DeFi proponents celebrate MakerDAO’s transition from a single to a multi-collateral system for producing its DAI stablecoin, it’s clear that DeFi has seen enough success to cement its status as a field that will continue to grow in novel and exciting directions.

It’s easy to confuse the goal of achieving decentralization with that of promoting financial inclusion but “not your keys, not your coins” describes the foundation of DeFi more accurately than “banking the unbanked.”