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Defi promises a future free of centralized control. It has opened up a new world where you can borrow money without a bank, earn interest on your crypto assets at rates that exceed traditional savings accounts, or trade assets directly, peer-to-peer, without relying on intermediaries. One of Defi’s key incentives is to remove barriers that exclude a large portion of the global population from financial services.
Neobanks, on the other hand, are purely digital banks with no 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.
So where will these two sectors intersect? Can neobanks use their technology infrastructure and intuitive UX to address the complexity of defi and create a more inclusive financial system? Let’s examine how neobanks can democratize defi products by acting as intermediaries between traditional finance (tradfi) and defi.
Defi’s rugged terrain
Over the last few years, the sector has attracted a wide range of tech pioneers, with the total value locked in defi protocols set to exceed $195 billion by May 2024. Interestingly, traditional financial institutions are also making moves into decentralized finance by offering custody services for digital assets and exploring collaborations.
One of the latest key trends in the space is the integration of artificial intelligence (AI) and machine learning. These technologies are already making a significant impact in defi across a variety of key areas, including security, chatbots, operational efficiency, risk management, and personal financial advisory.
Still, navigating defi’s uncharted territory can feel like climbing Mount Everest with flip-flops: its complexity and technical barriers remain quite high for the average user. Despite recent advances, security also remains a major concern. And despite the development of cross-chain bridges and interoperable solutions, defi protocols often operate in silos that prevent interaction; regulatory issues also can’t be ignored.
This is where neobanks, the sleek and user-friendly fintech geniuses, have the potential to become the Sherpas of the new financial revolution.
Neobanks: Connecting Defi to the masses
One of the biggest hurdles to Defi adoption is the inherent complexity of its protocols. Figuring out arcane interfaces, managing unfamiliar wallets, and fearing irreversible bugs pose a significant barrier to entry for even the most tech-savvy. Neobanks that focus on intuitive interfaces and user experience excellence could be game-changers in this space.
Through the seamless integration of defi functions into existing neobank platforms, users can access educational materials and explore different defi products, all in a familiar and trusted environment.
Fighting security: From the Wild West to Fort Knox
Security concerns are another major hurdle to defi adoption. Horror stories of hacked wallets and lost funds plague the crypto space. Neobanks can provide much-needed peace of mind to users with their robust security infrastructure and focus on regulatory compliance.
Imagine a world where neobanks act as custodians of your defi assets and offer the same level of security you 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, bridges, 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 bring together various defi services. This way, users can easily access lending, borrowing, trading, and other defi functions in a single app, simplifying their defi experience and eliminating the need to navigate multiple separate protocols.
Second, neobanks can provide seamless interoperability by acting as bridges between different defi protocols; for example, initiating loans using one protocol and seamlessly transferring those funds to another protocol for investment.
Third, neobanks can leverage their expertise to select high-quality defi products for their users. This curation process will include careful consideration of security, risk factors, and potential returns, providing users with a safe and convenient way to explore the world of defi.
Closing the regulatory gap
One of the biggest challenges facing Defi is the current regulatory environment. Regulations vary significantly across jurisdictions, creating uncertainty for both users and developers.
Neobanks with established relationships with regulators and experience navigating financial compliance can leverage their expertise to create tools and services that help defi projects comply with relevant regulations. This could include know-your-customer (KYC) and anti-money laundering (AML) solutions specifically designed for the defi space.
Beyond that, they can use their voices to advocate for clear and sensible regulations that encourage innovation in DeFi while protecting consumers, and work with regulators to create a framework that encourages responsible development and DeFi adoption.
The user-friendly gateway to democratized finance
Neobanks and defi represent two sides of the financial innovation coin. While defi promises a democratized future, complexity remains a barrier to entry. Neobanks have the potential to bridge this gap with their user-centric approach.
Today, I envision a future where neobanks have transformed from convenient banking apps to secure, regulated, unified defi experiences. This future fosters financial inclusion, empowers individual users, and unlocks the true potential of decentralized finance. As defi continues to evolve, collaboration between neobanks and defi protocols could make conquering the financial landscape much easier.
Nikolay Denisenko
Nikolay Denisenko is the co-founder and CTO of Brighty, a neodigital banking app. Nikolay has over ten years of experience in applied mathematics, business process management and app development. Before founding Brighty, he was the lead backend engineer at Revolut, developing Revolut Business. It was considered the most profitable division of the company.