How DeFi Simplifies Financial Planning for All

In the world of decentralized finance (“defi”) we often hear about “banking the unbanked”. The vision is to give people with no access to even a bank account, access to global financial market. People from developing countries often suffer from hyper inflation, massive fluctuations of their local currencies, restrictions by their governments or simply have no bank account to store their financial valuables. They cannot do anything than accept that. With the defi ecosystem they do not have to accept that any longer. Venezuelans, for example, are already massively adopting bitcoin to protect their wealth from governmental control and hyperinflation. There are many articles about the advantages of defi and people talking about their personal positive experiences. Here is a short overview of the biggest advantages of defi: Permissionless (anyone can connect: wealth, status, location irrelevant) Decentralized (no central server, records kept across many computers) Trustless (no central validation authority) Transparent (transactions publicly auditable) Censorship Resistant (no interference by central authority possible) Programmable (code is law) Low Cost (affordable cross-border transactions) Fast and Anytime (instant transactions 24/7/365) In this article I will show you how to rethink your financial planning right now for yourself and for your children and profit from all those advantages. It is really easy to take you first small steps in defi today and ensure the accumulation and protection of your future wealth for good. So maybe you belong to the privileged part of the population that thinks you do not have to care about defi, because you have access anyways? On the one hand that is quite selfish, on the other hand that is pretty ignorant. Even in developed countries, we already see a big shift away from a one stop shop bank relationship to a diversification of financial services’ providers. We access our check account via an online bank or app instead of a physical bank branch, use another online broker dealer for our trading activities and take up loans where they are cheapest – thanks to smart comparison portals. The “unbanking from your bank” is already in full progress. Fintechs have revolutionized financial services. But DeFi reinvents banking entirely new, focussing on full decentralisation and global financial inclusion at almost no cost. You are still not convinced why you should be well-versed in these topics? Then you probably also belonged to those children that only believed that touching a hot stove is not a good idea, directly after trying it our yourself. And this is not a bad thing. Not believing everything and questioning a lot is a good virtue. If the advantages of DeFi are difficult to grasp for you, start making your own experiences! Otherwise, you miss out on a lot of innovation and advantages. Starting today has never been easier I can tell you from my own experience, the more you learn about it and the more you gain experience, the deeper you get drawn into it. The effect will be so much stronger than any written or verbal advice. Let’s start throughout the lifecycle of a human being from child to pensioner to help you make your first steps into defi today. Financial planning cycle with defi from child to pensioner 1. Savings Account In Germany a paper savings book (“Sparbuch”) has for centuries been a typical gift for a new born by his grandparents. The child could for example save his pocket money and gain compound interest on that. Gain what? Yes, exactly. We barely have any interest rates anymore on savings accounts and therefore this product has become completely obsolete and only costs money. Defi offers a very attractive alternative here. MakerDAO constructed the stable coin DAI, which replicates 1:1 the USD. While a regular savings account offers a negative or low interest rate (e.g. Germany currently 0.01%), which does not even compensate for inflation (Germany CPI 1.4%) the interest rate on DAI, called Dai Savings Rate (DSR) is currently at 2%. So while some traditional bank accounts even charge negative rates, at Maker Oasis, you don’t have to pay for your savings, but actually receive interest and in the best case can compensate for inflation (depending on your country). Even for a non-techie like me, it was really easy to “open an account” in a few seconds. If you own certain coins, you can also stake them and generate attractive returns as well. However, this is a bit more complicated, but can generate an annual yield of up to 10%. Via StakingFacilities for example you can stake (bake) Tezos, Atom or Aion. You can delegate tokens to a validator, which executes your staking (baking) rights. 2. Loan / Credit Card Let’s stay in the field of interest rates and have a closer look at borrowing and lending. At some point your savings and income might not be enough to afford bigger purchases. But do you really want to wait several days or weeks for a creditworthiness check, show your bank all irrelevant reliabilities of the past and present and rely on an opaque credit score just to receive in the end a loan with an interest rate of audacious 10%-30%? Besides Maker Vault, the DeFi space has several other crypto to crypto lending and borrowing platforms (e.g. Dharma, Compound, Salt, Ethlend, dydx) as well as crypto to fiat platforms (e.g. BlockFi or Unchained Capital). With InstaDapp you can even optimize across decentralised platforms to get the best return offered. Maker, for example, goes entirely trust-less without approval process or credit score, relies simply on your underlying collateral, offers currently an attractive interest rate (called “stability fee”) of 4% and their CDP Portal is available 24/7/365. 3. Driver’s License If you managed to open a savings account and get a credit with Maker protocol, probably at the age of 18 you will have to undergo an identity check to legally vote for the first time, get a driver’s licence or a passport to travel across borders. But why would you show all your personal details if just your age (driver’s license) or just your place of residence (elections) matters? In the defi space several companies like Iden3, Civic or uPort are working on encrypted solutions that allow people to control their own data and just show the most relevant information for the respective occasion. 4. Voting Rights We are all aware of the double counting problem during presidential elections and the general problem of manual counting of paper votes in the traditional world. 2019 has been the year of the so-called decentralized autonomous organizations (short DAOs). Even though the first DAO wasn’t a success story, the DeFi space has learnt from it and projects like Decred, Maker or Gnosis show how successful digital decentralized governance and voting can look like. As a coin holder you can actively vote on proposals and make your voice heard. Every vote counts. 5. Income and Payments After you opened a savings account, got your driver’s license, travelled a bit abroad, voted for the first time and took up a loan to finance your studies for example, you finally landed a job. But what if you live in a country with extreme currency fluctuation or hyperinflation where the money earned doesn’t allow you to pay your bills? Here again DAI offers a solution for stability in the income that you earned. And if you want to conduct instant peer-to-peer transactions, projects like OmiseGO facilitate financial services payments when it comes to loyalty programs or fiat money, while the lightning network enables instant transactions via payment channels. 6. Real Estate / Car / Art Now that you have your daily finances settled, you might want to start investing short or long term. For crypto currency trading decentralized exchanges like AirSwap, KyberSwap or Uniswap are a good place to go to. You can profit from the cost-average effect and invest monthly in crypto currencies to accumulate and grow crypto wealth constantly over time. If you want to diversify your portfolio further, start investing in other asset classes as well. You can invest in non-fungible tokens (like crypto-kitties) or get exposure to traditional assets like real estate, cars or others valuables by investing in tokenised assets. The best part is that you don’t have to buy an entire house, car or piece of art, but can buy fractions of it with little money and flexibly divest or increase your exposure. Projects like Tinlake or Neufund are interesting starting points. If you are interested in expensive cars, check out CurioInvest.com. I met the founder and CEO this year and was thrilled by their idea of tokenising cars. Conclusion You can see that already by today you can easily “un-bank your bank”, become financially independent and profit from all advantages that were mentioned in the beginning: Instant permissionless low-cost transactions at any time and for anyone without interference of a central party. Who doesn’t want that? If you invest with the right risk appetite during the respective life cycle (the longer your investment horizon, the more risk you can take) while incorporating personal liquidity needs, investing with defi can help you optimising your long-term retirement planning and enhancing your financial return. Disclaimer: This is not financial or investment advice. Information is based on my own opinion. Always do your own research and never invest more than you can afford to lose. (Photo by Jessica Da Rosa on Unsplash)