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Issue Brief October 15, 2021

Designing decentralized finance for financial inclusion

By Nikhil Raghuveera


This paper sets forth the key principles along which decentralized finance (DeFi) goals should be oriented to unleash its promise of financial inclusion. DeFi can be a powerful tool to enhance financial inclusion—for the unbanked and the underbanked, as well as people living in countries with authoritarian regimes, hyperinflation, and weak financial institutions. Version 1.0 of DeFi, however, has thus far been primarily aimed at crypto whales, people who already have access to the financial system, and users in markets with robust financial institutions. This makes sense given the inherent risks of DeFi and the fact that a liquid financial market requires market makers. But to truly remake the financial system, this paper argues that the next iteration of DeFi must be developed toward an intentional vision for financial inclusion. Financial inclusion means that everyone has the tools to not only meet their daily needs, but to also build wealth for themselves, their families, and their communities. And in turn, greater financial inclusion supports more resilient and robust economies.

Reorienting goals

In order to fulfill this vision for economic prosperity and to go beyond the overplayed DeFi talking point of “banking the unbanked”, this paper proposes four goals that DeFi will need to prioritize: (1) cater to everyday use-cases; (2) offer easy to use products; (3) promote intentional risk-taking; and (4) account for mobile phones and internet accessibility.

The bottom line

DeFi protocols offer an alternative for people to access financial tools. While development has thus far focused on crypto native users, its future can push the frontiers of financial inclusion. For this, the paper argues that the responsibility of development falls upon private organizations and developers as well as public sector entities. Private sector serves as the frontline to the evolution of DeFi whereas public sector regulators and central banks establish the guardrails to protect users. At the same time, the paper concludes that DeFi in its decentralization, holds us all accountable. We cannot look to intermediaries to solve the most pressing financial problems. Instead, it falls upon each of us, public and private sectors, to design the frameworks and applications that enhance financial inclusion.

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