DeFi – Democratizing Finance for All

Democratizing financial solutions for all tends to be the northern light for many new
cryptocurrency projects. Our society does a great job of finding out what is not working and
developing a technology that will help all, not just a few influential individuals in Washington in
tandem with the help of the FED. DeFi will substantially evolve how traditional commerce is
carried out for many reasons. These reasons include reducing the amount of unbanked/
underbanked, equitable access to financial services, access to permissionless financial products,
and the lack of central control by for-profit companies.

Graphic Explaining High Level Decentralization Versus Legacy Financial System – The Medium

First, what is DeFi? It is a movement whose mission is to decentralize standard financial services
(e.g. borrowing, investment, trading, payments, and more). Below, I showcase an example
(borrowing and lending) of how it works, alongside how it will transform traditional commerce
and lastly, I go over some current obstacles DeFi needs to overcome.

Democratizing payments solves many problems that traditional financial services has not
solved. For example, many people in our society are either unbanked or underbanked and do
not have the same access to financial services as other individuals. From a Report on Economic
Well-Being from 2018 to 2019, 21% of U.S. citizens are Unbanked or Underbanked[1], which
leads to approximately $68.9M of the U.S. population facing financial challenges when it comes
to getting access to traditional financial services and products.

Federal Reserve Graphic – Conceptualizing the Under/Unbanked versus the Banked

Decentralized finance aims to make it, so payments are available to anyone in the world no matter what income level, net
worth, minority group, or where one is located. If one has an internet connection, they can
participate in today’s modern, fast, transparent, secure, and forward-thinking DeFi world.

Statista – Internet Users Worldwide – Out of 7.8 Billion Global Population

While much of the world still doesn’t have a reliable/consistent internet connection, this is
continuously being reduced and thus allowing citizens to participate in this new global financial
system. This new financial system is not just limited to peer to peer payments, but it also
expands into other areas in which individuals use financial services or products. These include,
through smart contracts, everything from high-interest savings accounts, loans, asset trading,
asset management, staking, tokenization, derivatives, insurance, and more.

Tezos is a competing project with Ethereum, and has integrated Smart Contracts, Staking and More – Contributing to the DeFI Ecosystem

Ethereum is the primary blockchain for smart contracts, but Tezos is another large competing
DeFi project that has been gaining momentum in the past couple of years. On these
blockchains, developers have created smart contracts which are essentially hard-coded
contracts in which certain conditions are or are not met. There is no ambiguity or
misinterpretation as there may be in the standard court of law. For example, let’s say a
borrower defaults on a loan that they took out with a smart contract. Depending on the terms
of the smart contract, if he misses a few consecutive payments, the collateral the borrower put
up will automatically go to the lender due to their failure to uphold the contract. How the
contracts are written is almost completely airtight and does not execute until the initial
conditions are met, which helps mitigate risk for lenders, insurance companies, investors, and

These smart contracts (often referred to as DeFi apps/DAPPS) are not centralized and managed
by any for-profit institution, bank, etc. They are essentially rules that are written into code by
the developers of the given project. Since there is no centralized institution managing the smart
contract there is reduced bias on any individual or organization. Since the code is visible for
anyone to see, if there are any bugs/issues with contracts or anything, developers working on
the project can implement updates if necessary. The power is in the hands of those using the
protocol, rather than a for-profit institution looking to maximize profits for themselves.

Centralized Versus Decentralized Network

There are some noteworthy obstacles in the way of DeFi taking over as our new financial
system. Foremost, many people in the world do not have internet access. Specifically, 19 million
Americans do not have an internet connection[2], and worldwide, there are 3.22 Billion people
who do not have access to the internet.[3] Many of the individuals who are under/unbanked
are those who are poor, and can not afford internet, or maybe in an area of the world that is
more rural and has a less developed infrastructure. These very people that would stand to
benefit the most from DeFi, cannot access the platforms/networks to participate. Next, as DeFi
is currently in its infancy, there are still rare cases where there have been flaws in the code of
smart contracts, and if this were to occur it could cause a contract not being executed properly
or, the worst case, a loss of funds overall[4]. Next, while there aren’t financial institutions
running DeFi projects, developers are. It can be more challenging to assess the motives of a
developer/team as much as we can assess the motives of a financial institution (especially
those publicly traded). The developers have a large amount of control of the code. Even with
proper voting on the network, there is always the potential for missteps. Finally, not pertinent
to just DeFi, but many governments around the world have or are putting regulations in place
to limit their citizens’ access to DeFi, due to lack of control. While it is unfortunate, this is a
reality that DeFi is facing and is something that can impede its full potential.

There are numerous benefits to DeFi that we have already seen, and even more beneficial use
cases to come. With billions of dollars moving in, many individuals, critics, and institutions alike
witness how this can revolutionize the world we live in. While it is not without its flaws, these
issues are continuously being worked out by talented teams who aim to make the financial
world more permissionless, secure, and less controlled. With the erosion of trust amongst the
FED policies, and for-profit financial institutions’ antiquated ways of finance, the future holds
many pros for DeFi, and it will change the way humans transact for the better.



Disclaimer: Nothing stated in this video is a recommendation from PieceofPaul to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.

Easily Explained – Ethereum

This blog is meant to inform those who are interested in understanding more about Ethereum, thinking about investing in ETH or curious on a high level understanding of what Ethereum is. I tried my best to remove as much financial jargon as possible, but additionally aimed to reduce cryptocurrency technical lingo. If you would like a deeper more technical understanding of Ethereum, please see the link at the very bottom(relevant articles from Forehand Financial). Please enjoy!

Ethereum is essentially the city layout, but things can be built on the layout of the city. While one cannot necessarily change the layout (without further releases of Ethereum’s network), one can build on top of it, in fact many projects and other things. Homes, parks, bridges, games, trees, markets, hospitals – you name it. These things that you can build on top of the city layout are essentially non-controlled applications on Ethereum’s network.

A Vibrant, Decentralized City

Picture a large vibrant city, with no controlling body or government. It is large, growing and there are a lot of transactions that occur throughout. This city has no center power, so it is not completely controlled by any single business or person. If one business were to go bankrupt, the city will still be able to operate – because there is no central point of failure.

The things that go in the city do not always need to be new. They can be old businesses or buildings, that need to be renovated. They can also be started completely from scratch, like a brand-new coffee shop. The people that transact in the city can do so directly with each other. There is not a bank, card processor, government entity or financial institution taking a cut of the profits on the transactions of the city. Only transactions occur between the people and that is it. No reseller, no middleman – just you and the other party (Unless you dictate otherwise).  

Without police or a central authority to ensure people are operating in check, the individuals/business/groups in the city enforce the rules. It is a collaborative effort that everyone in the city partakes to make sure the city is operating in the best legal and ethical manner possible. All those who do participate in helping to police and ensure ethical behavior will receive a little money in exchange for doing so. This money is called Ether.

Smart contracts run the city. If someone commits a crime and is found guilty in the court of law, no worries, the smart contract will execute due to the terms and conditions written therein. If a borrower defaults on a lender, again no problem, the lender will receive the collateral automatically as written per the contract.

Smart Contract As Per Wikimedia Commons

Ether is the electricity, the movement, or the lifeblood of the city. Without Ether, the city will turn into a ghost town. People who better the city(stake), receive the Ether as a type of incentive to continuously improve, refine and weigh in on improvements.

Revisiting the city layout from earlier on, the city wants individuals building things whether it may be for monetary gain, improving how things are done or simply for enjoyment. If a guy named Sam wants to build a few properties to rent out, he will then pay charges to the city. Individuals who decide to live in Sam’s properties likely will need to pay to use the property. If Sam’s properties use a lot of the city’s resources (electricity, water, etc.) he will need to pay more, if Sam’s properties use less resources, he will need to pay less Ether.

The Ethereum Token

As dictated from the founders of the city, only 18 million Ether will be created per year. To keep the city in balance, and prevent drastic inflation, this number was decided on by the founders to help promote transactions amongst individuals. This number will keep the city operating at a healthy level.

All in all, Ethereum is a city. ETH is the lifeblood of that city. Both are needed to create the excellent fin-tech ecosystem we have today. The city is ever evolving with further upgrades to the layout and the technology that the city can be built upon.

Relevant Articles from Forehand Financial:

Article References:

Nothing stated in this article is a recommendation from Forehand Financial to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.