DeFi
An uphill climb: Neobanks can democratize access to defi products
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DeFi promises a future without centralized control. It has ushered in a new world where you can borrow money without going through a bank, earn interest on your crypto holdings at higher rates than traditional savings accounts, or trade assets directly, peer-to-peer, without the need for intermediaries. One of the main goals of DeFi is to break down the barriers that have excluded large swathes of the world’s population from financial services.
Neobanks, on the other hand, are digital-only banks that operate online, without physical branches. Due to their user-centric approach, flexibility, and low fees, neobanks and crypto apps like Revolut, N26, Chime, and Brighty App have become very popular, making banking more accessible and convenient for millions of people.
And what about the intersection of these two sectors? Could neobanks leverage their technological infrastructure and intuitive UX to tackle the complexity of decentralized finance and build a more inclusive financial system? Let’s explore how neobanks can democratize decentralized finance products by acting as intermediaries between traditional finance (tradfi) and decentralized finance.
The rough terrain of Defi
Over the past few years, the sector has attracted a wide range of tech pioneers, with total value being locked in DeFi protocols. exceeding $195 billion by May 2024. Interestingly, traditional financial institutions have also jumped into decentralized finance, offering digital asset custody services and exploring collaborations.
One of the latest key trends in this field is the integration of artificial intelligence (AI) and machine learning. These technologies are already having a significant impact in several key areas of decentralized finance, such as security, chatbots, operational efficiency, risk management, and personal financial advice.
Yet navigating the uncharted territories of DeFi can feel like climbing Mount Everest in flip-flops: its complexity and technical barriers remain quite high for the average user. Despite recent advances, security also remains a major concern. Moreover, despite the development of cross-chain bridges and interoperable solutions, DeFi protocols often operate in silos, which hinders interactions; regulatory issues cannot be ignored either.
This is where neobanks, sleek and user-friendly fintech prodigies, have the potential to become the sherpas of the new financial revolution.
Neobanks: Connecting Decentralized Finance to the General Public
One of the biggest barriers to DeFi adoption is the inherent complexity of its protocols. Deciphering encrypted interfaces, managing unknown wallets, and fearing irreversible errors pose a significant barrier to entry, even for tech-savvy individuals. Neobanks, which focus on intuitive interfaces and excellent user experience, can be game changers in this space.
By seamlessly integrating defi features into existing neobanking platforms, users can access educational materials and explore different defi products, all in a familiar and trusted environment.
Security at the Heart of the Fight: From the Wild West to Fort Knox
Security concerns are another major hurdle in the adoption of DeFi cryptocurrencies. Horror stories of hacked wallets and lost funds haunt the crypto space. Neobanks, with their robust security infrastructure and focus on regulatory compliance, can provide users with the much-needed peace of mind.
Imagine a world where neobanks act as custodians of your DeFi assets, offering the same level of security you’d expect from your traditional bank. This includes secure storage of digital assets, advanced fraud prevention measures, and clear communication about the potential risks associated with DeFi. By prioritizing security, neobanks can foster trust and encourage broader participation in the DeFi ecosystem.
Breaking down silos, building trust
By acting as aggregators, gateways, and curators, neobanks have the potential to transform the fragmented DeFi landscape into a more unified and user-friendly ecosystem. First, they can leverage their user-friendly platforms to aggregate a variety of DeFi services. This way, users would have easy access to lending, borrowing, trading, and other DeFi features in a single app, simplifying their DeFi experience and eliminating the need to navigate a multitude of separate protocols.
Second, neobanks can serve as bridges between different DeFi protocols, enabling seamless interoperability, for example by initiating a loan using one protocol and seamlessly transferring those funds to another protocol for investment purposes.
Third, neobanks can leverage their expertise to curate a selection of high-quality DeFi products for their users. This selection process would involve a careful assessment of security, risk factors, and potential returns, providing users with a safe and convenient way to explore the world of DeFi.
Bridging the regulatory gap
One of the biggest challenges facing DeFi is the current regulatory landscape. Regulations vary widely across jurisdictions, creating uncertainty for both users and developers.
Neobanks, with their established relationships with regulators and experience in financial compliance, can leverage their expertise to create tools and services that help defi projects comply with current regulations. This could include: Know your customer (KYC) and fight against money laundering (AML) solutions specifically designed for the DeFi space.
Beyond that, they can use their voice to advocate for clear, sensible regulations that foster innovation in DeFi while protecting consumers, working with regulators to create a framework that encourages responsible development and adoption of DeFi.
A user-friendly gateway to democratized finance
Neobanks and DeFi represent two sides of the coin of financial innovation. While DeFi promises a democratized future, its complexity remains a barrier to entry. Neobanks, with their user-centric approach, have the potential to bridge this gap.
Today, I envision a future where neobanks transform from convenient banking apps into gateways to a secure, curated, and unified defi experience. This future drives financial inclusion, empowers individual users, and unlocks the true potential of decentralized finance. As defi continues to evolve, collaboration between neobanks and defi protocols can make conquering the financial landscape much easier.
Nikolai Denisenko
Nikolai Denisenko Nikolay is the co-founder and CTO of Brighty, a neo-digital banking app. Nikolay has over a decade of experience in applied mathematics, business process management, and application development. Before founding Brighty, he was a Senior Backend Engineer at Revolut, which developed Revolut Business. This division was considered the most profitable in the company.