Is DeFi actually democratizing finance, or just giving the rich new opportunities to become richer?

It’s 2024. We've been promised a financial revolution. Decentralized Finance (DeFi) was supposed to be that answer. It set out to build a borderless and permissionless ecosystem that would empower unbanked communities, particularly in areas such as Africa. As we hurtle towards 2025, a gnawing question lingers: Is DeFi truly delivering on its promise, or is it just another gilded cage built on hype and speculation?

MEV Profits Should Benefit Everyone?

Let's talk about Maximal Extractable Value (MEV). The concept sounds sophisticated, almost futuristic. Platforms like ZENMEV, flush with VC VentureX's $140 million investment, are leveraging MEV – capturing profits from arbitrage and transaction reordering – and redistributing them to users. Sounds fantastic, right? Who actually benefits? Are smallholder farmers in Kenya actually benefiting from these profits? Or are they largely ending up in the pockets of sophisticated traders and early adopters, who have the know-how and means to benefit from these openings.

I'm not inherently against MEV sharing. That’s what the challenge really is—the not widely shared opportunities. It’s like a gold-plated buffet that only allows people with diamond-encrusted plates to cut in front of everyone. We need to ask ourselves: is this really the equitable future we envisioned? Is this really “democratized finance,” or is it just a digitalized version of the same old bait-and-switch?

The unfortunate truth is that DeFi, as it currently stands, all too often values speed and complexity above accessibility. We know these user interfaces can be intimidating, and the quick opening into TDM jargon can be intimidating as well. The threats are genuine as well—rug pulls and smart contract exploitations definitely aren’t advancing financial inclusion.

AI Can Help, But At What Cost?

AI-powered automation is another trend to watch. AI’s allure lies in its ability to remove the mystique from DeFi and automate everything—trading, risk management, yield optimizing—among other functions. Here's the unexpected connection: remember the 2008 financial crisis? Unscrupulous lending with complicated formulas and mysterious derivatives were at the heart of that calamity. Are we truly prepared to put our financial futures in the hands of black boxes? Moreover, the underlying technology is months or years away from full practical maturity, which is worrisome.

  • Potential Benefits of AI in DeFi:
    • Simplified trading
    • Automated risk management
    • Yield optimization
  • Potential Risks of AI in DeFi:
    • Black box algorithms
    • Concentration of power
    • Unforeseen vulnerabilities

We need to proceed with caution. AI is an incredibly powerful tool, but it’s not a magic bullet. We need to demand transparency and auditability from AI systems. They need to put user safety and equity ahead of line in profits for major, non-competitive corporations.

Real-World Impact Now Or Never

The clock is ticking. We have until 2025 to course-correct. It’s time for DeFi to take its head out of the clouds and begin working with the real world. We need to see more projects focused on:

  • Financial Inclusion: Providing access to credit and financial services for the unbanked and underbanked, particularly in developing countries.
  • Cross-Border Payments: Facilitating faster and cheaper remittances, empowering migrant workers and supporting their families back home.
  • Supply Chain Finance: Streamlining supply chains and providing financing for small businesses, creating economic opportunities and fostering growth.

These are exactly the types of applications that can move our communities forward and help build a more inclusive financial ecosystem. This is where the awe should be. This is where the inspiration lies.

This is where VC VentureX and the other investors have a responsibility. It’s cool to dump money into MEV-sharing platforms, but are they putting money into projects that are actually focused on solving some of these real world issues? Are they truly putting social impact on equal footing with financial returns?

Here's the harsh truth: if DeFi continues down its current path, it risks becoming just another playground for the wealthy, further exacerbating existing inequalities.

It is time for us to start holding DeFi developers, investors and regulators accountable. Let’s call for more transparency, more accessibility, and an incredible doggedness in pursuit of real-world impact. Let’s work together to make sure DeFi fulfills its real promise of democratizing finance rather than just making the wealthy wealthier. The future of finance depends on it.