The world of finance is at a crossroads. With its legacy systems and ingrained practices, the traditional financial system (TradFi) struggles to keep pace with the rapid innovations of decentralised finance. At the same time, decentralised finance (DeFi), while promising increased accessibility and transparency, often faces volatility issues and a lack of robust regulatory frameworks.
This disconnect underscores the need for a “Third Way” – a model that can bridge these two worlds. This path should prioritise compliance, security, and accessibility, fostering a more inclusive and efficient financial future.
Why We Need a Bridge
Traditional finance too often creates obstacles. High barriers to entry exclude individuals and businesses, while cumbersome processes lead to inefficiencies. These systems can also be vulnerable to fraud, with centralised control points creating potential targets.
While Decentralised Finance (DeFi) offers exciting possibilities for innovation and transparency, it too faces its own challenges. Volatility, a lack of clear regulatory oversight, and technical complexity hinder wider adoption and trust.
My own experience, arriving in the UK from Yemen as an unbanked individual, speaks to these limitations. When I arrived in 2009 to study after the war broke out, I couldn’t open a bank account. There was no decentralised finance solution to this problem either, meaning I had to resort to pre-paid cards which were hugely expensive.
This experience fueled my mission to empower the unbanked and led to the creation of BABB. It was also then that I realised a necessary bridge is needed – one that merges the stability and compliance of TradFi with the transformative potential of DeFi. This bridge could unlock access, boost efficiency, and create a financial system that truly works for everyone.’
The “Third Way” Vision
A “Third Way” could address the limitations of existing systems while harnessing their strengths. One potential model lies in Onchain Money. This new concept involves a tokenised deposit system designed to directly mirror traditional fiat currencies like the British pound (GBP) or the euro (EUR). It distinctly differs from stablecoins, and more importantly, it upholds the “singleness of money” principle, ensuring the value represented within the system remains consistent with the real-world currencies it reflects.
This approach merges the best of both worlds: the stability and regulatory compliance of TradFi with the efficiency and accessibility of DeFi. By operating on a secure blockchain and leveraging smart contracts, transparency is increased, with transactions trackable and verifiable on-chain, aiding in fraud reduction and building trust.
Reduced barriers to entry with Onchain Money also mean extended access to those traditionally underserved, including a global underbanked community of 1.4bn people. Furthermore, this “Third Way” also unlocks the innovation potential, as the framework creates opportunities for new financial products and services and collaboration. The result is transparent, nearly cost-free transactions, with financial services opened up to a broader user base.
Challenges to Overcome
The vision for a new financial future is not without obstacles.
Firstly, scepticism must be overcome. Traditional financial institutions may be hesitant to embrace innovative models, requiring a focus on collaboration and clear demonstrations of regulatory compliance. This is why, for us, being FCA-approved is so important: it helps build confidence and reassure the TradFi sector.
Secondly, education and awareness: Increasing public understanding of concepts like blockchain and decentralised finance is vital for wider adoption and informed decision-making. Although these concepts are now well established, there still remains a large degree of mainstream misunderstanding around what they are and how they operate.
Finally, technological refinement. Continued development of DeFi technology, including the blockchain, is necessary to optimise scalability, security, and user-friendly interfaces within these emerging systems.
The Future Potential
The “Third Way’’, or Onchain Money, envisions a future where financial systems are more accessible, inclusive, and responsive to the needs of individuals and businesses worldwide. This model could foster a new era of financial innovation, driving economic empowerment and reducing global disparities in access to financial tools.
Importantly, this vision doesn’t necessitate a complete replacement of traditional finance. Instead, it focuses on integrating the strengths of DeFi with existing infrastructure, leveraging the expertise and regulatory frameworks of TradFi to build a more robust and responsible financial ecosystem. This collaborative approach, emphasising transparency and security, paves the way for a future where finance works better for everyone.
Rushd Averroes is the founder and CEO of BABB & ReDeFi. Babb is registered with the UK Financial Conduct Authority as a Small Electronic Money (e-money) Institution. The company aims to support a vision of making financial inclusion a global right. Regulated Decentralised Finance Ltd (ReDeFI) is a registered cryptoasset firm with the United Kingdom Financial Conduct Authority.
