Two Financial Worlds One App

Regulators are circling above wishing death upon Cryptos; To survive, cryptos must come to a compromise where Centralized Finance ala Traditional banking and Decentralized Finance (DeFi) co-exist, and regulators have a say, yet the anonymity of the blockchain is preserved. This is what the immediate Future of Finance is likely to look like.

…no amount of run will render a Bank Alternative insolvent

These parallel financial silos become one entity linked together by bridges. They are different from traditional finance/banking and also unlike decentralized finance; it is a hybrid, an alternative. For the purpose of this paper we would call it A Bank Alternative

A Bank Alternative

A bank Alternative will take the best of traditional Banking/Finance, put them in digital form, and bridge them with Decentralized finance, in such a way that you can enjoy the benefits of the two financial worlds from the same app seamlessly. Like a Fintech and DeFi having a lovechild.

A Bank Alternative is different from traditional banking because it does not practice fractional banking, and different from DeFi because it does not use stablecoins rather it uses Digital cash which is real-money on-chain (like e-money or Private CBDC) and each digital cash is 100% backed by real money in a 1:1 ratio held in treasury and verifiable on-chain.

This ensures that no amount of run will render a Bank Alternative insolvent, because all its cash and digital cash are represented by cash held in treasury in a 1:1 ratio. You will always get 1Dollar for every Dollar in your bank account or Digital-Dollar held in your Digital Account every time and anytime. A Bank Alternative is run-proof. It generates revenue from fees.

A Bank Alternative will give you at least two accounts. One is like a traditional bank account for your fiat currency (in digital form), and the other is a digital account/wallet more appropriate for Web3, Digital assets, and cryptocurrencies. Both allow you to move in-between them seamlessly and by implication change the state of your money/asset permissionlessly.

Many banks and Centralized exchanges (CEX) are looking at becoming a Bank Alternative

Ah! Tax

A Bank Alternative is primarily built on blockchain, however, all its centralized activities not verifiable on-chain would be regulated. And all decentralized finance activities verifiable on-chain would remain unregulated, making it easier to tax the off-chain regulated items for starters. This is a pragmatic first-step

The Regulatory Hurdle

The road to Bank Alternatives is filled with regulatory challenges from both the State and the financial regulators. Many countries have out rightly banned cryptocurrency like China, Bolivia, Ghana, etc and then there are countries where it is restricted including Turkey, Saudi Arabia, Nigeria, etc. The restrictions will have to be relaxed before a Bank Alternative can fully blossom

Who Will Become A Bank Alternatives

Many banks and Centralized exchanges (CEX) are looking at becoming Bank Alternatives but the regulatory hurdles keep them at bay. Fintech seems better position to become Bank Alternatives; in this group, you will find Revolut and MoneyGram + Stellar.

However, in the true tenets and structure of a Bank Alternative, as described above, you will find only Fluid Finance and Hightop. Only Fluid is active and has launched an App on Arbitrum that is working in true Bank Alternative. Yes, it’s early days, and many more features to come but this is the Bank Alternative.

If you stay traditional you will be left behind as the internet left AOL

In Conclusion: The Future For Banks and DeFi is The Bank Alternative

This middle-ground solution is where all Banks and DeFi must meet in other to survive. According to Robert Sharratt “If you stay traditional you will be left behind as the internet left AOL”; I translate this to mean, if you refuse to compromise as a DeFi-playing around with traditional financial services, the regulators will ensure you remain in the financial wasteland where all unregulated are sent to die.