The state of banking and finance today presents a complex labyrinth that even seasoned bankers struggle to navigate. Despite appearances, there is a method to this madness. As Nobel Prize winners like Muhammad Yunus and Joseph Stiglitz have cautioned in the past: central banking, in particular, has morphed to keep the status quo in check. Or, in the words of Mike Maloney, an expert on monetary history and economics: It is “the biggest scam in the history of mankind.” Maloney reasons that giving a small group of unelected individuals the keys to the monetary printing press will undoubtedly rot away the buying power of workers’ savings, for the benefit of the few who benefit from asset price inflation.
In the wake of the global financial crisis and devastating bank runs around the world, individuals and small business owners who simply want to keep the wealth they have earned are increasingly asking: Is my bank working for me, or am I working for my bank? But, until recently, there were simply no alternatives to central bank currencies, nor could anyone provide the services of commercial and investment banks.
Today, with cryptocurrencies and decentralized finance (DeFi) platforms on the scene, institutional banks are no longer the only players in the game. What was once the unquestioned, and even unchecked power, of institutional banks before the 2008 financial crisis, is now up for grabs as thousands of new entrants compete to change the foundations of financial systems as we know it.
So, what does this mean for the average person?
DeFi vs. traditional finance
To clear some of the fog, let’s compare the benefits of DeFi versus traditional and centralized banking and finance, from the perspective of the individual and small and mid-sized enterprises (SME) business owners.
In traditional banking and finance:
The individual takes on the risk of lending their savings to banks. Most banks use fractional-reserve banking, which means if someone deposits $100, the bank can lend out $90 and only has to keep $10 of it on hand at any time. Much of this is invested in complex financial instruments that may be highly…