Let’s face it, we all hate banks. But the feeling is mutual, banks don’t like you either. You only need to see the emails that are a matter of public record from the 2008 Great Recession about how financiers knew they were selling toxic assets, and laughing about it, to see what exactly they think about you. And they’re rarely held accountable for these actions, for instance only 47 bankers were sent to prison for their roles in the financial crisis in 2008.
However, not all financial institutions are cut from the same cloth. Some, like credit unions, actually care for their customers. The reason why this is so is simple: credit unions are owned and managed by their depositors as opposed to wealthy investors divorced from the day to day operations of the institutions.
Typically, credit unions were limited to their immediate surroundings, as they didn’t have the interest nor financial resources to expand past their immediate community. But then they began forming alliances with other credit unions and began being able to offer a wider range of financial services to more people.
Banks always had the upper hand though, as they were bigger because they squeezed every drop from their customers and used those additional financial resources to fund their expansion. But that is soon to change in the era of Decentralized Finance (DeFi).
DeFi allows credit unions to be formed as Decentralized Autonomous Organizations (DAOs) via blockchain technology. What this means is that DAO credit unions could have all the functionality and scale of a regular bank, but because they’re not bound by geographical limitations or serving one specific community, they can bank millions of people.
As such, like before, depositors will be able to pool their money to lend to other DAO members, as well as vote on policies. The key difference though is that DAO credit union members could be anywhere and the institutions themselves don’t really have to have almost any real staff at all - this is because most operations that a regular financial institution “in the real world” would have would be automated away.
This is done via the use of “smart contracts”, which are bits of code deployed on the blockchain which can regulate any exchange between different parties. Furthermore, as your financial history can be logged on the blockchain, you can have a credit score that is comparable to others, irrespective of where you live.
Fees and friction are minimized when there is no bank and most overhead is eliminated. As such, credit union DAO members can have vastly better and cheaper banking experiences than with traditional banks.
DeFi will change the way we bank and interact with assets of all sizes.
We are at the very start of the DAO revolution, and many new exciting things are happening that would’ve previously been thought impossible. Among them, the role of intermediaries in the financial industry will significantly diminish, and a credit union DAO will be able to offer banking services to billions of people who would not otherwise have access to financial services.
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