As part of our ambition to strengthen the UK as a global leader in the future of finance, Tech Nation’s Fintech Delivery Panel aims to explore the latest technologies – how they can scale and succeed – and to excite the ecosystem about their impact and potential.
Here, Min Teo, Fintech Delivery Panel Member and Managing Partner of Investments at ConsenSys, reports on our recent Emerging Tech, Future Finance roundtable diving into some of the finer details and issues surrounding crypto, decentralised finance and what the future holds for this innovative fintech vertical.
What is DeFi?
Decentralized finance – often called DeFi – refers to the shift from traditional, centralized financial systems to peer-to-peer finance enabled by decentralized technologies built on distributed blockchains.
From borrowing and interest rate platforms to stablecoins and other tokenized assets, the DeFi ecosystem has launched an expansive network of integrated protocols and financial instruments. There is a wide range of use cases for individuals, developers, and institutions.
You’ve probably all heard of Bitcoin, but much of this development has happened on a different platform: Ethereum. Ethereum is an open source blockchain platform with an inbuilt programming language allowing the development of additional products and services.
And it doesn’t stop there: we are starting to see the emergence of DeFi activity on other blockchains as well.
DeFi is often perceived to be just one company, or have just one use case, and has been accused of not being consumer-friendly. In actual fact DeFi comprises many different protocols and participants around the globe who are pushing for people to be able to access financial services more openly. Institutional interest is also on the rise.
What does DeFi look like in practice?
DeFi solutions in development cover a broad range of areas and address a number of consumer needs within the crypto sphere – from privacy, to liquidity, insurance, and transfers. Some examples below start to show the world of possibilities arising through these new solutions.
Argent – The Neobank for crypto assets
Argent is a simple and secure self-custody wallet that aims to give people control of their digital assets and identity. It provides easy access to other applications built on the blockchain, such as Aave and Uniswap. Argent does this through a neobank-like user experience that offers easy account recovery and transaction protection. Argent allows people to use ‘guardians’ – friends or trusted devices – to approve transactions to untrusted addresses.
“DeFi offers transparency, community ownership and rapid innovation. We want to make it as simple and secure as the best of traditional fintech” Itamar Lesuisse, Co-founder at Argent
Zumo is the decentralised financial platform that brings the benefits of blockchain and crypto to people everywhere. Their proprietary platform provides the most secure, yet simple way for consumers to access a new, and better, financial future whilst working seamlessly with traditional money. Their platform incorporates ultra secure non-custodial crypto wallets, borderless peer to peer payments, e-money accounts for GBP Euros shortly), exchange functionality and a Visa Debit Card. In the next few months they will be launching savings and lending products.
“We believe that consumers deserve secure, simple and regulated access to blockchain based financial products from which they can earn passive income, borrow money without affecting their credit score and move money internationally at a fraction of the cost. Zumo leverages the power of the blockchain to provide highly effective alternatives to failed, legacy, products such as traditional savings accounts and expensive international remittances.” Nick Jones, CEO & Co-Founder, Zumo money
Aave – The Liquidity Protocol enabling lending and borrowing
Aave allows users to earn interest on their cryptocurrencies. People supplying cryptocurrency provide liquidity to the market and earn a passive income, based on the current market borrowing demand. They and others can borrow assets supplied to the protocol. The Aave Protocol is open source and funds are allocated in a smart contract, whose code is public, and formally verified and audited by third party auditors. The use of public blockchain technology means all transactions are transparent, allowing visibility of the different kinds of exposures between different kinds of assets, an important development within lending and money markets.
“Defi is a fascinating space now, growing quickly” Stani Kulechov, CEO Aave
Nexus Mutual – DeFi’s answer to insurance
Nexus Mutual are building a decentralised alternative to insurance, where communities can come together, pool their funds and share risk. They want to let the community own the insurance, drive it and for the benefit to stay with the community. As DeFI develops a new economy and new financial framework, insurance is necessary to allow people to take risks and know they are protected. When users deposit funds into a smart contract, there’s a potential risk that those contracts have a bug in the code. It’s very hard to write perfect code, so Nexus’ primary product pays a claim if the smart contracts are hacked.
“We’re building a community-owned alternative insurance, supporting the transition to a decentralised financial framework” Hugh Karp, Founder Nexus Mutual
What are the next developments to look out for?
In-browser payments would be an exciting next step. Web authentication would mean people could get access to a secure private key in their web browser, through touch or face ID, meaning crypto payments could be used in the real world. A website would just request payment via crypto and wouldn’t need to know the username of the person it’s asking for money from.
Companies like Transak and Ramp are also stepping in to bridge the gap for instances where someone wants to send money in crypto but the receiver would prefer fiat currency e.g. sterling or dollars.
“The user experience in crypto will continue to improve, with companies from wallets to exchanges to social media platforms and browsers working on making accepting and sending crypto easier than fiat currency, helped by ever increasing mainstream – and especially millennial – adoption. Where crypto has in the past been quite difficult to access – as well as risk filled – with regulation kicking in, I expect to see both crypto, as well as NFTs, be a regular aspect of day to day life in the not too distant future” Erica Stanford, Founder and CEO of Crypto Curry Club
What needs to happen to increase customer trust and adoption?
Regulatory clarity: This can really help mass adoption of assets such as stable coins, and create confidence that companies are stable, legal and trustworthy.
Brand confidence: People bought Nike trainers and then bought Nike shares. So people may start owning a particular type of coin and then become more comfortable using wider services offered by that network.
Strong investor appetite: Appetite from VCs will also help, as to get them on board you need to have proven that you can build a successful network.
The future of DeFi
Cryptocurrency’s promise is to make money and payments universally accessible – to anyone, no matter where they are in the world.
The Decentralized Finance movement takes that promise a step further. Imagine a global, open alternative to every financial service you use today — savings, loans, trading, insurance and more — accessible to anyone in the world with a smartphone and internet connection.
As an investor in the space, it has been remarkable to witness the growth and maturity of defi protocols over the last few years. This is a movement that is gaining steam in every corner of the world. With a global user base, and investment from top US investors, some of the global champions have chosen the UK to build their vision and their teams. As a leader in global fintech, the UK is well positioned to be a destination of choice for top crypto and DeFi startups to build the fintech champions of tomorrow, by providing clear regulatory framework and supportive innovation ecosystems.