How financial technology can help us move closer to equality of wealth



August 25, 2021

9 minutes to read

Opinions expressed by Contractor the contributors are theirs.


The phrase “wealth inequality” may sound like something only progressives or activists like to use. However, this is a reality experienced by countries around the world. The gap between rich and poor continues to widen despite increased access to education and income opportunities.

Throughout 2020, the wealth of billionaires grew further as many low-income people struggled to cope with the pandemic as movement and travel restrictions drove many establishments and industries to limit their operations.

The United Nations and various other organizations have come up with solutions to close the wealth gap. However, making significant progress on this front remains elusive. Much remains to be done: more approaches, better strategies and perhaps new paradigms in the context of new technologies.

An emerging innovation in the world of finance that deserves to be examined in the search for a solution to wealth inequalities is decentralized finance or DeFi. Write for Global Policy Journal, economists Marion Laboure and Juergen Braunstein describe DeFi as “an opportunity to democratize finance and reduce wealth inequalities”. It can provide a force for good that helps advance the goal of closing the wealth gap and improving the lives of many.

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New decentralized roles

In essence, DeFi is like the traditional financial system but without the intervention of institutions that regulate transactions, policies, products and services. It is designed to enable freer markets which cannot be controlled or influenced by large institutions for the benefit of a few. It illustrates somewhat the principle of laizzes-making of the economy – the free market without the intervention of central control.

With DeFi, intermediaries are not necessarily completely eliminated from the financial situation. Instead, they take on new roles in the system rather than acting as a centralized bridge for those who save money and those who want to spend money. DeFi is slowly transforming intermediaries into direct players who benefit from capital flows, for example by becoming lenders or investors themselves.

Decentralized finance creates democratization in financial transactions, services, investments and other related fields. It reduces barriers to entry for those who want to use digital payment methods, invest their money or get involved in other financial activities. It enables underserved people to access more financial services and take advantage of credit opportunities.

While it is true that institutions like banks have served as a sort of gateway for financial market transactions between savers and spenders, one of the main criticisms concerns the fees charged or policies that may be too restrictive. for consumers. By removing control from powerful institutions, end users gain better access to financial services with greater efficiency and lower costs.

In many ways, the current centralized nature of finance has not helped close the wealth gap. Some would even say that it made the problem worse. Decentralized finance is seen as one of the viable ways to alleviate the problem. It may not be the complete solution for the wealth gap per se, but it can significantly help reduce wealth inequality.

Can decentralization help?

The democratization of financial transactions creates the advantage of increasing the flow of money between savers and spenders, or between borrowers and lenders. With DeFi platforms, those who have the resources can take advantage of them by directly lending their money to those in need.

Peer-to-peer transactions and decentralized trustless platforms make it easy to transfer funds for purchases or lending activities. It allows the parties to the transaction to avoid the high costs of financial services, which typically include high interest rates, service charges, and various hidden charges.

DeFi especially helps to advance the following to contribute to social good.

Charity

Peer-to-peer money transfers and crowdfunding platforms have been in the news and hailed as a lifeline for recipients who might not be able to raise funds otherwise. These have provided funds for charitable causes as well as assistance for personal needs such as medical expenses or to support a good cause.

The direct transfer of wealth between individuals contributes significantly to enabling the transfer of wealth to those in need. Tech evangelist Andre Bourque says that in the United States alone, charitable giving already represents a $ 241 billion market that is largely driven by millennials. Charitable work plus DeFi is a great combination which helps distribute wealth to those who are in desperate need of help.

Stemming from decentralization, the non-fungible token (NFT) also shows how the DeFi space helps support charities other than through decentralized fund transfers. These indivisible and unique tokens represent the unique ownership of material or intellectual property, for example, including works of art or creations. A number of artistic NFTs have been sold to raise money for charity. The $ 2.9 million Jack Dorsey got by selling his first tweet as NFT was donated to charity. The New York Times also donated the proceeds from the sale of an NFT item in excess of $ 500,000.

Data integrity and traceability company Number protocol makes it easier to mint and sell Celebrity NFTs – which include collectible photos that fans can acquire and own as NFTs – for charity. The company collaborated with actor and celebrity Vaness Wu to create photos with exclusive NFTs to sell for charity. These are featured on the NFT CaptureClub Marketplace, and proceeds from the sale of Wu’s NFT art will go to the Family of Joy Foundation, which aims to help children with autism.

Related: You’re Less Likely To Be Happy Once You Start Earning More Than This Amount, Studies Find

Create a haven of authenticity online

In an age of misinformation, Numbers is making a difference by opposing false stories and lies by creating what he calls an “Authentic Media Network”. This is a space on the internet where authentic content is secure and can speak for itself. Numbers Authentic Media Network aims to bring a brighter, more trustworthy future by questioning potentially problematic ramifications of information sharing such as fake news or fake identities.

For example, false, misleading or deceptive promotional propaganda is often used to deny the realities of equality and governance issues that leave much to be desired. The Authentic Media Network is not only useful for creating and monetizing NFTs, but it can also help protect social truths and expose realities that need to be changed for the betterment of society.

Without a way to ensure the veracity of content in the digital space, it is easy to produce fake content with the intention of sullying social advocacy, downplaying global problems, and promoting deceptive populism. Thanks to a media network guaranteeing authenticity, the proliferation of content promoting the status quo of inequalities will be considerably reduced.

More accessible entrepreneurship and investment opportunities

DeFi’s growth has not necessarily been without obstacles, including potential challenges in terms of user experience and accessibility. However, innovative solutions are introduced like Gust, which seeks to integrate DeFi applications with new blockchain networks and meet the challenges of usability.

The rise of decentralized finance encourages companies to be more creative and innovative in offering new products and services to consumers. In an effort to attract more investors and consumers, companies are developing ingenious ways to make DeFi products accessible and easier to attract those who are not so tech-savvy.

“We think there are a lot of innovations going on in DeFi. Unfortunately, the user experience is not catching up. A lot of people would love to take advantage of the high return DeFi offers, but are just frustrated with the experience, ”said Mike Ting, co-founder of FLURRY Finance and former vice president of JP Morgan.

“DeFi should be simple, easy to use and beneficial for everyone. Through this, the platform plans to allow everyone to access DeFi opportunities and accumulate decent returns on their investments, ”he adds.

Ting believes that the DeFi space as well as the evolution of technology should overtake the traditional interest rate model, offering more efficient solutions that are more beneficial to consumers and entrepreneurs.

A path to equality of wealth

DeFi helps to create a capitalist society that facilitates mutual aid and the transfer of wealth with a minimum of obstacles. It’s the kind of capitalist tool that creates a level playing field for entrepreneurs, borrowers, and those who just need the cash to get by.

It is a false dichotomy to say that socialism is the key to curing the ills of capitalism. The solution can also be found in capitalism itself. By empowering consumers and turning intermediaries into innovative financial service providers, the flow of money decreases dramatically, creating more entrepreneurial opportunities and encouraging service improvement due to competition.

Also, it is important to ensure that social truths are not buried in the avalanche of misinformation that regularly spreads online. It is useful to have a way to validate the authenticity of content or media, especially if they relate to social issues and policy making – decentralization and modern financial technologies offer a highly viable solution.

As entrepreneurial studies professor Scott Shane argued, there is nothing wrong with tackling wealth inequality, but not at the expense of entrepreneurship.

“Political intervention to fight inequality is easier to justify when the increase in CEO compensation and the salaries paid to the Wall Street elite are the cause. When greater entrepreneurship among the rich is responsible, the argument is harder to make, ”Shane explained.

To facilitate a more meaningful transfer of wealth, it is better to focus on helping people to access financial services, invest and pursue entrepreneurial activities instead of focusing on policies that easily distribute money to those. in need. Decentralized finance is a viable strategy for creating a path to equal wealth.


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