A Life Less Analog, Technology

DeFi: Defying poverty, accelerating financial inclusion

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As decentralized finance (DeFi) becomes more mainstream, it will continue to transform financial services in the Philippines and drive financial inclusion. This was emphasized by the head of Philippine Digital Asset Exchange (PDAX), which recently raised US$12.5 million (Php630 million) in funding, led by a UK-based venture capital firm, and joined by Hong Kong-listed fintech company BC Group.

“Most of the financial inclusion problems in the Philippines have underlying infrastructural root causes. And what is very challenging for the traditional financial services space is precisely what blockchain technology and decentralized financial applications do very well. The innovations in blockchain technology are actually innovations in infrastructure,” PDAX Founder and CEO Nichel Gaba said in response to my question during the press briefing.

DeFi and the digital revolution

As DeFi becomes more mainstream, it will continue to transform financial services in the Philippines and drive financial inclusion. Image credit: Philippine Digital Asset Exchange
Image credit: Philippine Digital Asset Exchange

“So I can see that these applications will find very meaningful use cases in the Philippine market for the years to come. It’s also very likely that we will see traditional financial institutions adopt [lessons], even technologies from the DeFi space into mainstream applications,” Gaba said.

So what the heck is DeFi and why does it matter? As its name makes clear, it’s all about decentralization, which removes traditional barriers to financial inclusion. Instead of relying on central financial intermediaries — whether these are banks, exchanges, or brokerages — DeFi makes use of smart contracts on the blockchain. The most common blockchain platform for these smart contracts is Ethereum.

That’s the beauty of blockchain. It’s a trustless system — meaning trust in blockchain is part of the technology itself. And that’s why blockchain is a powerful force for good.

Future of finance

Since its founding in 2018, PDAX has been helping lower the barriers to financial inclusion for Filipinos. Cryptocurrency adoption among Filipinos has accelerated due to the COVID-19 pandemic. In fact, according to PDAX, since the start of the COVID-19 pandemic in March 2020, the company has seen 25X growth in its user count and an 80X rise in its monthly volumes.

In the latter part of 2020, PDAX launched its mobile app to allow users to more conveniently trade cryptocurrency.  And as we reported last year, it collaborated with the Bureau of the Treasury and Union Bank of the Philippines to launch Bonds.PH. the world’s first blockchain-enabled app that allows retail investors to invest in retail treasury bonds right from their mobile devices.

So if you think DeFi is just another buzzword, think again. As digital natives, millennials and Gen Z love blockchain and cryptocurrency. What more Generation Alpha when they come of age?

Just as my Gen Z daughter grew up with broadband and can’t understand how I survived with a dial-up connection, so too will DeFi be second nature to the digital generation.

As William Gibson, my favorite science fiction writer has eloquently put it: “The future is already here – it’s just not evenly distributed.”