Financial Literacy: The First Stage Of DeFi
Decentralized finance is a way for people to securely store, use and invest their assets without having to trust or rely on any single third-party service provider. In blockchain-based systems such as Ethereum, smart contracts take over as the “middlemen”. These self-executing apps, which live on top of a blockchain protocol, enable transactions to be executed by an autonomous network of computers without human intervention.
But DeFi right now is inaccessible to mass audience adoption; the technology is difficult to understand, and the financial concepts that DeFi replaces and rewrites have been deliberately obfuscated by institutional finance for a century.
Most of the decentralized financial products available today were created by technologists for other technologists with little to no focus on translating these abstract concepts into language that, regular people would actually understand.
This leads to a culture of “elitism” where knowledge and access are restricted in order for some applications to remain focused on a bleeding-edge audience of early adopters. It’s not entirely different from the elitism that runs our financial institutions and excludes entire demographics from participating in financial freedom and wealth creation.
Stage 1: financial literacy
Financial illiteracy isn’t something that just happens — it’s a lack of choice brought on by an unbalanced system. There is a dire need to empower the masses with financial literacy so they can both benefit from decentralized finance and make informed decisions.
To gain mainstream adoption, decentralized finance needs to make things simpler. Financial literacy must become the first step toward public adoption of these tools.
This is crucial because financial literacy should be seen as a necessity for individuals to make intelligent decisions about the risks and benefits involved in investing their own money. Unfortunately, this is where I see many people drop off in the crypto-sphere.
Financial literacy is a topic that can be approached from two angles: one, you have to understand what financial technologies, tools, and paradigms do and how they work, which encompasses technological financial literacy; and two, you must also learn about the underlying economic incentives that motivate individuals to adopt these technologies in the first place.
Financial literacy isn’t just an opportunity for blockchain adoption though; it’s a necessary step for anyone who wants to break out of the patterns of financial manipulation that maintain current structures of capital access.
This means that, especially in times like now where the economy is still experiencing extreme political and social polarization, financial literacy is not only necessary but can also help provide insight into how to improve your life.
This doesn’t just mean having access to a product or technology but also knowing how they work and why they are beneficial in the long term. By adopting these financial products, users become more financially literate and have a better understanding of how they work. But it’s important that this financial literacy is something that can be cultivated by everyone, not just those who have a strong technical background
Stage 2: financial autonomy
The next necessary step for decentralized finance to reach mainstream adoption is financial autonomy. By financial autonomy, I mean the ability for individuals to be in control of their own finances through both traditional and decentralized finance products. We need to grant people the tools to make their own decisions, combined with the literacy to make their own decisions, and begin to remove gatekeepers.
Financial autonomy right now is restricted in order to protect unseasoned investors from making dangerous financial decisions, based on the lessons learned in the Great Depression — about 100 years ago. But we’re still allowed the necessary autonomy to make shitty investments and poor decisions around homeownership in a market that has yet to recognize its mortality, poor decisions around our interactions with banking products that are provably harmful, and even poor decisions around access to online gambling that is designed to be harmful and addictive.
And any financial autonomy that we have is bound to the traditional banking structures, which means that we are still limited in our access to products and services. This also means that the current financial system is inherently flawed, having been created by people who don’t necessarily have the common good of everyone else at heart.
Stage 3: DeFi mass adoption
The final step in the path to mass financial freedom is DeFi, and this isn’t just about products and services that exist right now — it’s about financial empowerment for everyone. We can achieve financial empowerment through education, which is the first step toward mass adoption. By increasing financial literacy, we are able to empower everyone to make their own decisions about their finances.
Cryptoeconomic systems are designed to incentivize participants through tokenization. The more we can unlock these incentives and offer them to people, especially those that have been typically left outside of the benefits of traditional financial investments such as retirement plans, education funds, and other avenues for financial stability.
What makes these smart contracts different from traditional applications is that they are not owned by any single entity or individual. This means that no hacker, government, or corporation can stop them from running, censor them, or charge fees for using them.
No one has control over the distribution of the tokens. Because blockchains provide a transparent record of transactions between parties, it becomes harder to commit fraud or carry out activities that could damage users or other applications on the ecosystem.
Financial autonomy requires that individuals have access to decentralized finance products that they can use for their benefit. This means that many of these products will solve real-world problems.
This means that we need to think beyond simply developing technologies and breaking down these barriers; instead, we need to understand the mindset of people who are currently financially illiterate and allow them to make their own decisions.
We need to think about the actual people that these technologies are being built for, and what types of tools would be easiest for them to adopt. This means putting the necessary measures in place in order to allow lower-income individuals access to financial products and simplified interfaces.
This is why I think the biggest step in making DeFi mainstream is not just about financial literacy but also about empathy.
And if we can put these technologies in the hands of more people, while encouraging financial literacy and empathy, we might actually unlock mass adoption.
With the emerging market of decentralized finance, we have an opportunity to teach financial literacy in a non-biased and open way. The emergence of DeFi can provide people with fresh perspectives on how they engage with their own money, allowing them to make better decisions that keep their interests at heart.
NFTs are an on-ramp for DeFi, because they break widely accepted misconceptions around value and centralization, giving people a glimpse into the possibilities that tokenization can bring to life.
The more we can allow people to make decisions for themselves, the more they will be able to take control of their own livelihoods and actually have a say in how their financial future is created.
In my mind, this is just another example of how technology brings about financial empowerment. Just the promise of what’s possible from DeFi has been enough for many people in crypto to drop their existing jobs and enter into this market full-time.
And we are all still early.