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Fintech Infographic of the Week: Making Investing More Accessible with Decentralized Finance

by Fintech News Singapore July 18, 2019

Across the globe, access to financial markets diverges dramatically from one country to another. While in the US about 52% of people are investing in the stock market, in emerging countries like India and Mexico, the figure drops significantly with only 2% of Indians investing in stock markets and 2.6% of Mexicans being retail investors.

Thankfully, blockchain technology and open source protocols like Bitcoin and Ethereum have birthed the new concept of decentralized finance (DeFi), a trend promising to bring financial services to those who have so far been excluded.

DeFi represents a broad category of financial applications being developed on open, decentralized networks. DeFi has grown into one of the most active sectors of blockchain with applications ranging from stablecoins, decentralized exchanges and wallets, to payment networks, lending and insurance platforms.

For our Fintech Infographic of the Week series, we look at a visual from crypto startup Abra and Visual Capitalist that shows traditional investing trends at a global scale and how decentralized finance can help create more financial access, opportunity and equality, especially for those that don’t have access to the modern financial system.

How decentralized finance can democratize investing

Investing in financial markets is a basic tool to build personal wealth, and yet, across the world, several obstacles are preventing people, especially those in emerging markets, from investing in quality financial assets.

The infographic highlights four main barriers:

Geographic lottery: Where someone lives determines their ability to access financial markets and build wealth. People living in developed countries are much more likely to invest in financial markets.

Financial literacy and complexity: 3.5 billion adults lack an understanding of basic financial concepts, and thus, do not understand the benefits of investing.

Local market turmoil: It is impossible to be a successful investor if the local economy is in turmoil. Yet, it is especially people in these economies that need to build wealth and financial stability the most.

Cost of investing in foreign stock markets: For those located in weak economies, investing in stable foreign markets can be nearly impossible considering the high price of stocks such as Amazon at more than US$1,800. And that’s not to mention the multitude of additional costs such as brokerage commissions, stamp duties and currency conversion fees.

According to the infographic, investing apps built on public blockchains have the potential to break down these barriers and democratize investing.

Their potential lays in the fact that public blockchains are permissionless (meaning that anyone can access regardless of their status or credentials), decentralized (they are borderless with global distribution), and programmable (services running on these blockchains can be programmable to be low cost and interoperable).

When applied to financial markets, smart contracts (self-executing contracts with the terms of the agreement being directly written into lines of code) can be used to automate transactions and remove expensive intermediaries like brokers and banks.

Additionally, on public blockchains, financial assets can be digitally represented in the form of a token. These tokenized financial assets can be digitally fractioned to provide investors partial ownership, allowing for micro-investing.

And because these services run exclusively online, they are accessible to people in remote areas of the developing world who no longer need to visit a nearby financial institution or local market.