Next-generation financial services must ensure fundamental change, not superficial


By Hatu Sheikh, co-founder of CAD Creator

Fintech promises to completely transform how people experience finance. There has been a lot of progress on this front over the past two to three decades. Banking services are now available to consumers tip of the fingers, and digital payments have exploded post COVID-19. But even so, the number of unbanked people in the world has improved only marginally, from 1.7 billion in 2017 at 1.4 billion in 2021.

There is clearly a gap between the expectations of fintech and its realities. Indeed, mainstream innovations have mostly only disrupted legacy systems on the outside. The logic, principles and internal structures—that is, the roots of most problems—remained unchanged. That’s why next-generation financial solutions need to make fundamental changes rather than superficial ones.

It is questionable, however, whether radical change at the fundamental level is really possible. Yes, it is possible, thanks to emerging financial instruments, services and platforms powered by blockchain technology.

Radical change is not utopian (in finance)

Most people think that radical and fundamental changes are unachievable, even impossible and utopian. This view has its merits, with plenty of historical evidence. And until the mid-2000s, this also applied to finance and financial services. But not since Bitcoin‘s introduction in October 2008.

Bitcoin ushered in a new financial era by enabling a fundamentally different form of money. This marked the beginning of a sea change in finance as the first stable peer-to-peer payment system without centralized control and governance. This laid the groundwork for the subsequent movement towards decentralized financial systems that disrupt legacy frameworks and processes.

Decentralized finance (DeFi) and other blockchain-powered innovations have proven that an alternative financial system is practically possible. Solutions in these areas radically alter the internal processes of legacy systems. Above all, they are replacing centralized models with user-centric and community-driven models.

From top to bottom to bottom to top

The tremendous growth of Fintech has not adequately translated into financial inclusion, as it has retained the top-down model of legacy systems. The top-down model is inherently exclusive with a few controlling the many, thus subject to censorship, manipulation and access blocking.

The venture capital industry is a glaring example of how traditional innovations have failed to solve problems of centralization. In 2021, venture capitalists put a $621 billion record in startups around the world. These numbers are misleading, however, given the price innovators typically have to pay for these funds.

Most venture capitalists are huge, for-profit organizations that impose a strict growth-oriented approach on startups. They often force innovators to launch and scale their products prematurely. Additionally, VCs buy out these companies if and when they fail in the long run, jeopardizing the founders’ vision and innovation.

These problems are rooted in the centralized and top-down nature of VC markets. Giant moneybags are rarely accountable to innovators. There are also very few opportunities for retail investor participation due to proprietary policies and high barriers to entry. And this is where new-age solutions break in with an alternative bottom-up model, effectively promoting financial inclusion.

Example: Decentralized Launch Pad Ecosystems

The community-driven, user-centric model, which is also bottom-up, may seem easier said than done. One of the reasons for this skepticism could be the extent to which these alternatives are different from their traditional counterparts. It is therefore important to consider a concrete scenario to drive the point home. And while there are many possible examples of this, decentralized launchpads help paint the full picture.

Platforms or channels connecting innovators and investors are among the most critical parts of any industry. This bridging role has traditionally been performed by centralized entities, with similar issues to those facing venture capital funding. But the tides are turning now, thanks to decentralized launch pad ecosystems providing a whole new incubation environment for startups. They also benefit retail and institutional investors with new revenue streams like staking and yield farming.

In a radical departure from centralized incubators, decentralized launchpads directly engage the user community in decision-making and governance. For example, users can vote on issues such as project listings and platform upgrades. Additionally, these platforms encourage individual participation and reward them financially with tradable or interest-bearing crypto-assets.

The above characteristics make decentralized launchpad ecosystems a prime example of futuristic community-driven platforms. But more importantly, they make these platforms the go-to option for next-generation financial solutions, fostering a fair, inclusive, and user-centric future.

New game, new rules, new playgrounds

The next generation of financial services aims to completely change the game. This means replacing old and regressive rules with progressive rules while taking into account the interest of each stakeholder.

Traditional hierarchies, such as those that taint the relationship between investors and innovators, companies and customers, etc., must disappear. And the new game must be played on level playgrounds, which decentralized launch pad ecosystems provide, among other things.

The hallmark of next-gen solutions, however, isn’t just that they use new technologies. It’s more about how they use the cutting edge of technological innovation. Indeed, the technology is neutral as such – one can create centralized or semi-centralized services using the blockchain.

In conclusion, what defines new-age financial solutions is their radical choice to embrace user-centric and community-driven frameworks. Their business models are more about profit sharing than profit maximization. They are players in a new collaborative game where growth is accompanied by mutual cooperation and fair and healthy competition. Their journey is a journey to true financial inclusion, rather than just talk.

About the Author:

Hatu Sheikh is co-founder of CAD Creator, building the future of venture capital. DAO Maker creates growth technologies and funding frameworks for startups, while simultaneously reducing risk 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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