@ Hank C. Moody - Feelin' Moody Labs

What an crazy, busy ride it's been lately! I've been crisscrossing the nation for work and embarking on the thrilling journey of relocating to a brand new living space. A pitstop on the work journey was San Francisco, once a city of love, which now feels like a city of contradictions. It's fascinating how this place, once so intertwined with the financial world, could stumble so spectacularly. I’ll save my deeper reflections for a separate post. Amidst all these observations and experiences, I’m grateful for the opportunity to connect with all of you and engage in meaningful conversations.

Let's spend a few minutes this morning catching up and talking about what it looks like to be "bankless." It's interesting; usually, this would mean talking about the less fortunate individuals who perhaps don't have a bank or access to all the lame, boring financial services we all take for granted. Today, I'd like to share my thoughts on the possibility of a future where, instead, everyone is bankless. Not because they don't have access to financial services, but because they prefer to take custody of their own assets. Tools have been built to enable not just custody but also (damn near) risk-free lending, capital raising, instantaneous settlement of funds around the globe, micro-transactions, etc. With these capabilities given to every individual who has a smartphone, hopefully, you can see how becoming bankless, something that used to cut people out, just might be everyone's way in.

The concept that I refer to at the end of my last article, how our money is still stuck in the age of the telegraph and has been the slowest part of our lives to enter the age of the internet, is a feature, not a bug. The legacy financial system is a centralized tool of wealth extraction and control. The ways this magical wand is wielded on individuals, institutions, and governments all the same are pretty clear. On behalf of individuals, millions of bankless people in Sub-Saharan Africa, Southeast Asia, and parts of Latin America just lack access to "banking" services because it's not "profitable" enough or even lack the ability to get proper identification, effectively banning their ability to take part in wealth creation. Others like Kanye West or super-rich Russians are cut off from services or have property stolen due to losing political favor. Companies and governments can have assets frozen or even seized for similar reasons or under the guise of violations of our superior morals and are hit with "sanctions." Some might encapsulate this in a word: discriminatory. Something that for sure, without a doubt, does not exist "at the end of history," right? The regulators, who have the audacity to call themselves "Watch Dogs" as if they have any teeth, always allow the robbers to ransack the place before even barking. I guess that's what happens if the burglars break the window with a big juicy steak? If this has happened once or twice, any sane person would suggest ADT.

The legacy financial system is notoriously known to be slow, expensive, ridden with fraud, and frankly dangerous, enriching bad actors and terrorists around the globe. Considering it runs on mainframe technology and requires vast amounts of human input and manual review, it makes sense as to why we all suffer immensely from the flaws inherent in humans: bias. The greatest updates to the most simple form of financial activity have been new cool apps that let you send your friend money, in what seems like seconds, but it really still takes the same old amount of time to settle as any other 'digital' transaction using the legacy financial payment rails. The same censorship applies as well; PayPal is notorious for cutting people off from their funds and inflicting a "guilty until you prove yourself innocent" approach. They automatically enforce this censorship in code for "consumer protectionist measures" while Wells Fargo is fined $1.7B for active money laundering, yet no accounts are ever frozen, and it's always "innocent until and even after settlement." Back to the point, this act of "settling" a transaction is the process where the banks "verify" that a customer has the money in their bank account to pay for dinner. This is what consumes everyone's time. One would think there must be a way to automate this similar to the automation of their customer service (dunk). You ask the legacy system, the only thing that has near-instantaneous settlement, is cash, but good luck getting that to your friend who moved out of state on his birthday. The reason we rely on this flawed crutch is that never before could you prevent or prove ownership of any digital good or object without a slow, centralized actor performing that verification "offline." Today, we have a blockchain for that, and all verification will be done "online," or the industry term, "on-chain."

In the age of the internet, arguably the best way to get your friend that birthday money would be Bitcoin, the first "real-world" application of decentralized finance. Decentralized finance, or DeFi, refers to the decentralized, futuristic, Lego-like building blocks used to construct a new, more inclusive (non-discriminatory) financial system with better financial governance. This system aims to align the incentives of every stakeholder of any type of shared entity. New terms have emerged from the future of the industry: CeFi, DeFi, and DAOs (Decentralized Autonomous Organizations - more on these in the weeks to come). CeFi or some would say TradFi describes the centralized, traditional, legacy financial system that everyone has come to know and hate. Some could argue that any traditional bank with branches throughout a region practices "decentralized" finance. The main difference lies in the governance models of how funds and/or organizations are managed. This brings us back to Bitcoin.

Bitcoin is a peer-to-peer digital cash system with near-instantaneous settlement (around 10 minutes). It means that you can send this new coin to your friend anywhere in the world with an internet connection, without the need for any slow, cumbersome offline verification process.

In a previous article, I mentioned that "digital gold... is uniquely suited to perform in that type of environment." Cryptographically-backed currencies like Bitcoin are the "digital gold" designed specifically for the internet environment. Instead of a distributed centralized actor having full control and being the single point of failure, decentralized financial services are governed by open-source code that anyone can contribute to, review, and run, executed by a blockchain. In fact, the majority of the internet's core services are open-source projects. The internet was built in a way that telecommunications had no single point of failure, and there is no centralized actor with full control of the internet. Can anyone describe a more fitting unit of exchange for that type of environment? One feature of the new magic internet money is that it's completely programmable. You can set monetary policies in open-source code (Bitcoin's current and total supply and inflation rate are publicly available, unlike the current and total supply of USD). This way, everyone holding that money has a full understanding of what the future holds and can plan their life accordingly, but that's only if we, as a people, truly value stability.

Do we all get a vote in how the policy is dictated? That's another feature enabled when using the new magic internet money. The only way individuals can vote for change in the current financial system is by converting the local currency into something else. This has been observed in hyperinflationary regimes like Venezuela, where individuals sell their local currency for foreign currencies, including Bitcoin. With magic internet money, governance models can be implemented from a bottom-up approach. For example, MakerDAO is a Decentralized Autonomous Organization (DAO) that governs the stablecoin DAI, which aims to stay relatively worth $1 USD. MKR token holders participate in the governance process by voting on proposals that can affect the monetary policy and risk management of the MakerDAO system. The voting power of MKR holders is proportional to the number of tokens they hold. There are other voting methods, such as quadratic voting, that aim to achieve a more equitable distribution of preferences and avoid the dominance of simple majority rule. Imagine that for every dollar you hold, you could actively participate in FOMC meetings with the Federal Reserve and vote for the best policy to achieve the fiscal goals of the nation-state (government by the people, for the people), instead of relying on the decisions of 12 unelected individuals in suits.

Another term that has begun to percolate throughout the industry is 'bankless,' which refers to leaving the traditional financial system and instead opting for your finances to be represented in new magic internet money and managed by applications built to automate the functions of legacy services typically offered by a bank. Perhaps "bankless" doesn't quite fit the characterization of what I just described. Maybe the better term is actually "bankmore." The reasons are as follows: 1) There would be more people involved in the banking process. 2) There would be more services offered to individuals. 3) There would be more money in deposits available for loans. Since code can't discriminate (anyone with internet access can create a public and private key needed to verify their accounts on the blockchain) → more people can participate → resulting in reduced fees + expanded reach of services due to the global nature of the internet → leads to greater amounts of deposits → more money for credit creation/expansion and loans → more people lifted out of poverty.

Now, let's shift our focus to how this virtuous cycle can be implemented and what tools we can pay attention to. Use cases such as lending and borrowing were some of the first services that leveraged smart contracts and the magic internet money from blockchains. This technical paradigm has enabled true peer-to-peer lending without the need for intermediaries such as banks. Some platforms, like Compound, Aave, or MakerDAO (as mentioned above), even offer higher yields on deposits than traditional finance. Decentralized exchanges (DEX) like Uniswap ensure a fair and decentralized trading environment where every participant has equal access to liquidity. This groundbreaking approach eliminates concerns such as front-running, which has caused poor public relations for centralized brokers like Robinhood.

Are there any new capabilities or services that this new technology brings? Of course, there are capabilities such as microtransactions and micropayments. In traditional banking systems, microtransactions are not well-suited due to high fees and infrastructure limitations. However, cryptocurrencies and DeFi enable microtransactions and micropayments with low transaction costs and the ability to transfer fractional amounts of cryptocurrencies. This opens up new use cases, including micro-rewards, pay-per-use services, and decentralized content monetization. It unlocks new business models for creators, further fueling the creator economy. Instead of journalists being forced to give up their talent to entities like the Wall Street Journal for a salary, magic internet money can unleash them to share their content in more places at a lower cost, increasing distribution and providing people with greater access to information and a more diverse set of perspectives.

As you can see, the blockchain technology has brought forth questions that many of us have never considered, assuming that someone else would know better and handle it. To shape the future you desire, you must participate in the present. Engage in discovery, questioning, testing, and finding solutions. The bigger and more humanitarian question I hope everyone reaches is: "What do I want the future to look like, and how can I contribute to making it a reality?"

I hope you are sticking with me and starting to see a glimmer of hope for a better, freer, and more inclusive world that extends beyond the fortunate few who were born with access and opportunities to create wealth.

Are You Feelin’ Moody?