DeFi: The Key to Enabling Global Financial Inclusion

I am most excited about the promise of decentralized finance (“DeFi”), more specially how on-chain credit can be the use case that brings the next billion web2 users into web3.

Traditional Finance has been the lifeblood of the global economy, but it is failing us. Rooted in pre-internet paradigms, TradFi is a black box, especially when it comes to access to capital. By providing transparent, efficient, and global access to capital on-chain, I think DeFi provides a real, attractive value proposition to the next billion web2 users.

#Why does it excite you?

DeFi presents an opportunity to re-design the global financial system from the first principles: natively global, digital, and composable. On-chain credit, in particular, has become a growth engine for the emerging on-chain financial system. On-chain credit removes the inefficiencies in the depositors → banks → borrowers value chain, and upgrades it on-chain to depositors → smart contracts and liquidity pools → borrowers. A new cost structure is introduced to finance, with near-zero marginal, operational, and labor costs.

#What is the potential in this area that you see being the most impactful for people? Why?

The transformative power of DeFi is fully activated when bringing DeFi’s efficient infrastructure to real-world lending, opening DeFi to a $2.5 trillion household lending market.

However, there is a huge gap before on-chain credit can go mainstream in the real world: identity (or the lack thereof). Today, borrowers are required to post crypto collateral because there is no identity-centric, risk-based underwriting available. This model of intermediation fully built around collateral undermines benefits of financial inclusion, requiring users being both “crypto-rich” and “crypto-native.”

That is why we are focused on building web3’s first identity protocol at Masa. 1.5 billion people worldwide have credit scores, and 3.3 billion people are “credit invisible,”: meaning they are creditworthy. Still, their credit history is not associated with them in the traditional banking systems. For the first time, an on-chain identity with Masa can give the 3.3 billion credit-invisible people access to a global liquidity pool.

Additionally, our newest venture into Soulbound tokens has been incredibly well-received by our core native web3 community. To date, we have 50SBT credit reports created and 15,000 SBT mints. We are thrilled to see how positively users have responded to this and are looking forward to seeing how Soulbound tokens will continue to inform the Masa mission.

#What are the downsides of DeFi?

During the past cycle, we have seen a lot of speculative, high-leveraged, or purely yield-farming activities in DeFi. The contagion across centralized DeFi lenders in the past few months gave the community a bad reputation. At Masa, we are excited to bring DeFi’s efficient infrastructure to real-world lending, providing real, tangible use cases to the next billion users.

#What are your predictions on how DeFi will evolve?

DeFi cannot and will not stay in its own echo chamber. The transformative power of DeFi is fully unleashed when bringing DeFi’s efficient infrastructure to real-world assets. Using DeFi’s efficiency to solve real-world financial hurdles will activate the next bull market.