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By Hatu Sheikh, co-founder of DAO Maker
Fintech promises to completely transform how people experience finance. There has been much progress on this front in the past two to three decades. Banking services are now available at consumers’ fingertips, and digital payments have soared post-COVID-19. But despite everything, the number of unbanked people worldwide has improved only marginally, from 1.7 billion in 2017 to 1.4 billion in 2021.
There is clearly a gap between the expectations from fintech and its realities. This is because mainstream innovations have mostly disrupted legacy systems only on the outside. The internal logic, principles and structures — i.e., the roots of most problems — have remained unchanged. That is why next-generation financial solutions must bring fundamental changes rather than superficial ones.
One might wonder, though, whether a radical change at the fundamental level is at all possible. Yes, it is possible, thanks to emerging financial instruments, services and platforms powered by blockchain technology.
Radical change isn’t utopian (in finance)
Most people believe radical, fundamental changes are impractical or even impossible and utopian. This view has its merits, with much historical evidence. And till the mid-2000s, it would also apply to finance and financial services. But not anymore since Bitcoin’s introduction in October 2008.
Bitcoin ushered in a new financial era by enabling a fundamentally different form of money. It marked the beginning of radical change in finance as the first stable peer-to-peer payment system without any centralized control or governance. This laid the foundation for the subsequent movement towards decentralized financial systems that disrupt legacy frameworks and processes.
Decentralized Finance (DeFi) and other blockchain-powered innovations have proved that an alternative financial system is practically possible. Solutions from these domains radically alter the internal processes of legacy systems. Above all, they replace centralized models with user-centric and community-oriented ones.
From top-down to bottom-up
Fintech’s tremendous growth didn’t translate adequately into financial inclusion because it retained the top-down model of legacy systems. The top-down model is inherently exclusive with a few controlling the many, thus prone to censorship, manipulation and access blocking.
The venture capital industry is a glaring example of how mainstream innovations failed to address the problems of centralization. In 2021, venture capitalists put a record-breaking $621 billion into startups worldwide. Such figures are deceptive, though, considering the price that innovators usually have to pay for such funds.
Most VCs are humongous, for-profit organizations imposing a strict growth-first approach on startups. They often compel innovators to prematurely launch and scale products. Moreover, VCs buy these companies out if and when they fail in the long run, compromising the founders’ vision and innovation.
These problems are rooted in the centralized and top-down nature of VC markets. The giant money bags are seldom accountable towards innovators. There’s also very little scope for retail investor participation due to exclusive policies and high entry barriers. And this is where new-age solutions break in with an alternative bottom-up model, effectively fostering financial inclusion.
Case in point: Decentralized launchpad ecosystems
The community-oriented and user-centric model, which is also bottom-up, might seem easier said than done. One reason for such skepticism could be the degree to which these alternatives are different from their traditional counterparts. So it’s important to consider a concrete scenario to drive the point home. And although there are many possible examples in this regard, decentralized launchpads help provide a comprehensive picture.
The platforms or channels connecting innovators and investors are some of the most critical elements of any industry. This connective role is traditionally fulfilled by centralized entities, with problems similar to those facing VC funding. But the tides are now turning, thanks to decentralized launchpad ecosystems providing a completely novel incubation environment for startups. They also benefit retail and institutional investors with new revenue streams like staking and yield farming.
In a radical shift from centralized incubators, decentralized launchpads directly engage the users’ community in decision-making and governance. For example, users can vote on matters like project listings and platform upgrades. Moreover, these platforms incentivize individual participation and reward them financially with tradeable or interest-bearing crypto-assets.
The above features make decentralized launchpad ecosystems a quintessential example of futuristic, community-oriented platforms. But more importantly, they make these platforms the go-to option for next-generation financial solutions, nurturing an equitable, inclusive and user-centric future.
New game, new rules, new playgrounds
The next generation of financial services is about changing the game altogether. This means replacing old and regressive rules with progressive ones while taking each stakeholder’s interest into account.
Traditional hierarchies, such as those staining the relationships between investors and innovators, companies and clients, etc., must wither away. And the new game must be played on level playgrounds, which decentralized launchpad ecosystems provide, among other things.
The mark of next-generation solutions, however, isn’t merely that they use novel technologies. Rather, it’s more concerned with how they utilize the cutting edge of technological innovation. This is because technology is neutral as such — one can build centralized or semi-centralized services using blockchain.
To conclude, what defines new-age financial solutions is their radical choice to adopt user-centric and community-oriented frameworks. Their business models are more about profit-sharing than profit-maximization. They are players in a new, collaborative game with growth comes with mutual cooperation alongside fair and healthy competition. Their journey is a journey towards actual financial inclusion, rather than mere lip service.
About the author:
Hatu Sheikh is a co-founder of DAO Maker, building the future of venture capital. DAO Maker creates growth technologies and funding frameworks for startups, while simultaneously reducing risks for investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Image and article originally from www.nasdaq.com. Read the original article here.