As the COVID-19 outbreak wreaks havoc on the Usa' economic system and abroad, investors grapple with a 2d economic downturn in simply over a decade. While the 2008 financial crunch and the coronavirus pandemic are very different, both events have produced marketplace volatility and immune for new technologies to emerge.

The economic disruption wrought by the pandemic also highlights the importance of serving people who are currently outside the financial system, both in developing and developed economies. Today, at that place are i.7 billion unbanked individuals worldwide, according to the World Bank.

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Since the fiscal downturn, people take begun questioning established companies and traditional systems such as banks. With more half the world's population aged under xxx and 55% of the world'south seven.7 billion citizens now online, seeking alternative solutions to the fiscal structures in identify has become much more than a niche. Twelve years after the 2008 financial crunch, people however seem wary of banks. According to a household survey from the Federal Deposit Insurance Corporation, outside of high fees and minimum balances, the unbanked have pointed to a lack of trust and privacy when dealing with banks as reasons for their non owning a checking or savings account. When combined, the lack of trust (sixteen.1%) and lack of privacy (seven.ane%) account for almost a quarter (23.two%) of the primary reasons why unbanked people do not have an account.

The lack of trust for banks created demand for culling financial services, leading to an increasing quantity of such alternatives where people can put their money. One popular choice was technology companies. This idea really took off after the introduction of the iPhone in 2007 and its App Store the post-obit yr. Not just did Apple tree open up up opportunities for products and services but it as well created a new style to quickly distribute software while keeping the world continued via the cyberspace.

Multiple groundbreaking startups were born from economical downturns. Instagram, WhatsApp, Uber, Airbnb, Twilio, Dropbox and Slack are just a handful of the successful startups founded during the last recession. Non simply were multibillion-dollar brands built in the years following, but fintech startups like Kabbage, LearnVest and Betterment started popping up around Silicon Valley and making major inroads toward the digitization of banking. These fintech apps take not but taken out some of the intermediaries but besides drastically inverse the mode people interact with money on a daily basis.

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Financial exclusion

Uncertain times pave the way toward a better world equally people look to more reliable alternatives to the financial institutions that have failed them. Just as the 2008 recession forced successful startups out of the rubble, 2020'due south COVID-nineteen pandemic is doing the same. Today, we're seeing the unemployment rate rise due to COVID-xix. This fall, the United States Agency of Labor Statistics reported that long-term unemployment, or those that have been out of work for 27 weeks or more than, jumped to over ii million — the highest thus far in the coronavirus pandemic-induced recession. Though some people have returned to work, data shows a marked increase in unemployment rates over the past 7 months.

With anxiety at an all-time high, both consumers and businesses are looking to banks and credit unions for financial relief, access to authorities aid, and guidance on how to cope with the ongoing economic tempest. Withal, institutions are failing, and unfortunately, the systems put in identify to protect u.s. such every bit healthcare, testing, protective equipment and supply chains have crumbled from poor leadership and delayed reactions. Just similar in 2008, consumers are turning to technology for solutions.

An opportunity for DeFi

This represents a massive opportunity for fintech today, specifically decentralized finance, as it has the ability to provide most of the population access to financial services. Every bit the hot, new cryptocurrency trend of 2020, DeFi cuts downward intermediaries such equally banks, thereby adding to the speed of transactions. Full value locked on DeFi platforms has risen by approximately $12 billion in the span of one year, co-ordinate to industry site Defi Pulse. During a time when primal banks are slashing interest rates with a criterion rate sitting shut to zero, investors are on the hunt for new returns and are now ready to explore DeFi.

Over the years, raising funding has been challenging for fintech firms, particularly early-stage ventures, every bit investors typically focus on established startups with clear business models. However, the economic slowdown has significantly inverse the narrative around Bitcoin (BTC), DeFi, stablecoins, privacy and more. The value locked into DeFi projects continues to surge, but a milestone less discussed is the industry having crossed $500 million raised in venture majuscule funding.

Co-ordinate to data collated by CB Insights on the fintech space in the third quarter of 2020, sixty% of all capital raised by financial technology startups came from just 25 rounds worth $100 1000000 or more. Adding to the trend of growing venture capital funds, the report noted that fintech investment from $100 million rounds grew 24% compared to Q2, while investment in the space from smaller deals fell 16% over the same timeframe. Overall, fintech deal volume dipped 24% compared to Q3 2019, totaling 451 global deals. All the same, dollars invested into fintech startups edged up once again to $36.5 billion in Q3 2020, the largest result thus far in 2020 and the 2nd-best, single-quarter effect since yr-terminate. Notably, the number of smaller venture rounds — those marked "seed" or "angel" — grew by 20% compared to Q2 2020.

Related: Chasing the hottest trends in crypto, the Eu works to rein in stablecoins and DeFi

With all eyes on DeFi, it'south time to sympathize that it's less about the insane returns offered to yield farmers and more about the democratization of finance. While still in the sector's early on years, DeFi projects are already unpacking inefficiencies in the electric current system by increasing financial inclusion, increasing liquidity and reducing costs. Since the first of Q3 2020, "deposits by cryptocurrency enthusiasts into DeFi projects have swelled to more than $10 billion from $2 billion."

Beyond finance, there is a growing interest in DeFi and its potential to improve existing current systems and infrastructures. It'due south no longer acceptable for industry players to promote an "incredible tool for inclusion" while no piece of work is being done on the usability front end. Despite the sector's incredible promises, the level of complexity for users is still a major barrier to mass adoption.

The views, thoughts and opinions expressed here are the author's lone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Tim Frost is the founder of Yield, a fintech app making DeFi accessible to everyone. Specializing in early-stage blockchain startups, Frost helped advance blockchain companies at the likes of QTUM, NEO, Paxful, Polymath, Selfkey and Everex. He was likewise a founding member of the Wirex, a digital cyberbanking platform, and helped abound EQIBank. His expertise in banking, blockchain and technology has played an influential role in helping develop the tools and products for Yield.