The allure of DeFi is undeniable. A world where anyone, everywhere, with nothing more than an internet connection can have access to all the world’s financial services – that’s an exciting vision. Let’s not allow ourselves to be swept away by the idealistic vision. Will this revolution make everyone better off, or will it just enrich a new set of winners and losers? Are we actually creating a more equitable financial system, or are we just icing over the same inequitable cake with better tech?
Freedom For All Or Just Some?
We get sold on the need for financial inclusion, the need to empower the unbanked and underbanked, democratize access to capital. Sounds great, right? Freedom without any form of safety net is a very risky game to play. Consider this: the unbanked are often unbanked for a reason. They might be overwhelmed by a lack of financial literacy, language barriers or systemic inequalities that have made them a victim themselves. Throwing people head first into the deep end of DeFi with no education or consumer protections is downright dangerous. It’s as good as giving a loaded gun to a three-year-old.
Imagine how the internet used to be. The original promise was social and political universal access to information and communication. And the internet has certainly been a positive force in many ways. It has equally been responsible for the rise of echo chambers, rampant misinformation, and the polarization of our society. Can DeFi avoid a similar fate? Will it emerge as a tool for empowerment, or will it fester as a hotbed of scams and exploitation?
As Marcel Harmann, CEO of THORWallet noted in a recent CoinDesk opinion, he’s correct to say that focus is needed even in all this hype. We can't let the glitter of NFTs and meme coins distract us from the fundamental goal: building a sustainable and equitable financial system.
Regulation: Friend Or Foe Of Progress?
Regulation in the crypto space is a controversial topic, and Harmann's views on this are crucial: regulation is key, but balance is crucial. Others claim that any regulation kills innovation and attacks the core tenets of decentralization itself. But still others think that regulation is necessary for consumer protection and to prevent fraud. As is so often the case, the truth lies somewhere in between.
Imagine the Wild West without a sheriff. That's what unregulated DeFi feels like. It’s a playground for scammers and fraudsters, who seek to prey on the most unsuspecting investors. Over-regulation can be equally harmful, squashing innovation and pushing legal companies abroad. The key is to find the right balance: regulation that promotes transparency, protects consumers, and fosters innovation.
As Harmann explains, the push for Bitcoin ETFs moving past the regulatory hurdle is a huge milestone toward mainstream adoption. It also underscores the call for more regulatory clarity. Institutional investors should be able to count on a clear framework that outlines what they can and cannot do. Retail investors should be protected from scams and fraud. To adequately guard against risks to retail investors, regulators must take into account the degree of decentralization of each of DeFi protocols’ contracts.
Privacy: A Right Or A Risk?
Harmann is deeply committed to the idea that privacy is a basic human right. He understands the need for a system that enables privacy to be removed in the case of wrongdoers. This is a crucial point. Today, privacy is invaded daily—and now much more so because of digital technology. Governments and corporations are collecting unprecedented levels of surveillance data on every aspect of our lives. Yet they wield that information to deceive, track, surveil, coerce, exploit and otherwise attack us.
Privacy isn’t only about shielding ourselves from those outside villains. It is just as much about protecting our agency and ability to think for ourselves. As soon as we become aware that someone is looking at us, we want to stop. We fear the unpopular opinion, the radical idea, the status quo shaking concept.
Complete privacy is equally a cloak for criminals and terrorists. The challenge is to find a way to balance privacy with security, to protect individual rights without enabling malicious activity. We need to be asking hard questions about the societal impact of DeFi. That’s why it’s so important to have these difficult discussions about the future of privacy. Harmann correctly identifies the EU’s efforts on retail Central Bank Digital Currencies (CBDCs) as alarm bells. Her plan would do just the opposite, opening the door to dangerous government overreach and the development of an observation state.
By providing an intuitive and user-friendly experience without sacrificing the essence of decentralization, they are bridging the gap between complex DeFi concepts and the average user. The future success of DeFi will depend on our ability to address its ethical and social dilemmas. To do so, we need to build systems that are transparent, accountable and rooted in our fundamental social values.
It’s not enough just to have a technically superior financial system. We need to reclaim and reconstruct our world in a more just and equitable way too. If we fail to act, DeFi will just serve the rich and mighty. The burden will fall on the most vulnerable among us. We need collective action, open discussions, and a commitment to ensuring that the benefits of DeFi are shared by all.
