What Is Defi and Why Does It Matter? (2024)

Financial services

As a financial system without intermediaries, Decentralized Finance (DeFi) represents an opportunity to replace, improve, disrupt, or evolve the $131 trillion dollar financial services industry. Perhaps most importantly, it can potentially change the lives of the approximately 1.4 billion people around the world without access to essential financial services, according to the World Bank's Findex survey. Commonly referred to as the unbanked, these include individuals I know. Seeing the challenges these friends and acquaintances face fuels my passion about the revolution in financial services we are witnessing.

People lack bank access for numerous reasons. They might face geographic limitations (e.g., no bank within walking distance), not have a job, or lack the required credentials (e.g., a driver’s license). DeFi offers an alternative to traditional or Centralized Finance (CeFi) by eliminating many of these barriers to access – and more people are taking notice. Though it has taken some years for major uptake, we can see in the chart below the more recent rapid participation in DeFi.

Technology Enables Financial Inclusion

While DeFi enables the same financial services as CeFi (e.g., banking, loans, insurance, mortgages, investments), think of it as a system providing those services without all the infrastructure. At its simplest, it’s banking without banks.

Many of us are already quite comfortable with this in the form of mobile finserv apps. Consider how PayPal, Venmo, and Zelle allow anyone to pay anyone else in the world. Put simply, DeFi democratizes finance. As long as someone has a mobile device or another way to connect to the Internet, they can participate.

As the name implies, the control of finances is decentralized in DeFi. That means no central bank manages the storage and exchange of funds. Instead, many tech enablers power the peer-to-peer architecture at the heart of DeFi.

In other words, this rapid revolution in financial services is largely driven by “technification” or increasing investment in technology innovation. Consider that US banks’ tech investments steadily climbed between 2000-2022, while global fintech spending has skyrocketed in recent years.

The technical underpinnings of DeFi (e.g., blockchain, smart contracts, and cryptocurrencies) can be hard for the average person to grasp. Add to this an entirely new world of financial services, and many people are wary or just confused about DeFi and how it fits into their lives. That presents a huge opportunity. Now’s the time for finserv brands and experts to educate people on the promise – and potential pitfalls – of this industry shift.

Become the Voice of Clarity

On LinkedIn, we are seeing numerous people take a leadership role in this regard, including the 2022 LinkedIn Top Voices in Finance. They are among the many behind the 32% increase in articles on LinkedIn about "DeFi", "FinTech" and "Crypto," adding up to a 17.5% jump in engagements by LinkedIn members between 2021 and 2022, according to internal LinkedIn data.

One of these most recent articles appeared on LinkedIn’s Human Capital newsletter, featuring industry experts on the financial trends they are most excited about.

The fintech segment continues to look for ways to bring more people into the digital economy. Building and launching innovative, inclusive products is more than a trend — it signals the evolution of the payments ecosystem as a whole. At Money20/20 we saw this with the America’s Got Access startup competition, where what we saw from each startup was a concerted focus on unserved and underserved segments — from Remynt, which empowers consumers to rebuild their credit while resolving delinquent debt, to Totem, a digital bank geared toward Native Americans. Enabling and expanding access — to credit via open banking, to international money transfers, to bill payment — was top of mind during this competition and across the show as economic uncertainty sat at the forefront. —Sherri Haymond, executive vice president, digital partnerships, Mastercard

I’m excited to see more fintech companies introducing solutions that expand accessibility. Given the current economic headwinds, it’s especially important for products to support a variety of borrowers to ensure people have a fair and honest way to access financing solutions. —Brendon Kensel, CEO, PrimaHealth Credit

As a Mexican entrepreneur, I continue to be excited about fintech’s role in expanding financial access and inclusion to heavily underbanked populations in Latin America. Mexico has one of the fastest-growing e-commerce markets in the world — despite having a highly informal economy that relies heavily on cash and a financial services system that makes it difficult for average people to access financial products. It’s fintechs like us that work hard to find innovative solutions to serving consumers with thin credit files or without bank accounts — such as using “alternative data” in the credit decisioning process. —Adalberto Flores Ochoa, founder & CEO, Kueski

We're seeing a lot of innovation in the decentralized banking spaces where the solution is solving a real problem in our market. We love to see these new solutions gain momentum when the old ways aren’t meeting the needs of everyday people. Buy now, pay later skyrocketed during the pandemic as a great example of that — people needed money and the credit system wasn’t the most accessible or fairest. For me, community finance, which we are pioneering, is big for the same reason; it’s another way people have turned to alternative solutions to meet their needs for accessing money and building wealth. Community finance is not just about delivering a solution to a community that is underserved or leveraging community-based marketing; it’s actually putting dollars back in the same community that is paying for the solution. —Rodney Williams, co-founder & president, SoLo Funds

Whether you are cultivating a personal or professional brand on LinkedIn, think about how you can light the way when it comes to DeFi. I hope you’ll join me and other leading voices on LinkedIn as we engage in conversations around framing and building the future of financial services.

As you seize the opportunity to both reach and serve the unbanked, I suggest you start by educating and serving as a source of accurate information. By providing much-needed clarity, we can inspire millions of people around the world with the understanding that this industry revolution can truly change their lives for the better. Be sure to follow me and the 2022 LinkedIn Top Voices in Finance for the latest developments in finserv.

To keep abreast of Finacial Services trends in marketing subscribe to the LinkedIn Ads blog.