LJ Articles| 8/09/2021 | #15

Protocols will replace banks very soon …

by Lorimer Jenkins, y.at/⌛🚀💎🙌

Hopium Diaries

What do you think a Bank does ?

At the most basic definition a Bank takes your money and then loans it out. In exchange you get interest and security. Of course there are other things but this is the most simple way of looking at it.

What do you think a protocol does ?

A protocol is a certain set of rules that then get executed. So why can’t we replicate what a bank does and generate a little bit more money in doing so ?

Decentralized Finance vs Centralized Finance

Banks are centralised finance (CeFi) and crypto protocols as decentralized finance (DeFi). CeFi allows the person in charge to reverse money transfers, change entries and transfer your money. DeFi does not allow this, DeFi isn’t controlled by anyone therefore no one can do this. Many people enjoy the security of CeFi and the simplicity. But some people want DeFi to become mainstream. But remodeling traditional financial architecture is no small task, potentially cutting out billions of dollars for banks.

Greedy Banker

What is the point in all of this ?

Lets use interest rates as a case study.

Stop reading this article now, take a look at your bank accounts interest rate. Mine is currently 0.01%. That’s nowhere close to beating the current inflation rate.

According to Statista the estimated inflation rate for 2021 is 1.51%, 1.86 for 2022, 1.96% for 2023, 2% for 2024, 2% for 2025 and 2% for 2026.

Without even compounding that over the next 5 years I will have to combat 11.33% inflation rate. On a 0.01% interest rate a year, almost set up to fail.

Meaning if I left £100 in that account for only 5 years, I’d lose around £12. Doesn’t sound like much but apply that to millions or your pension, it’s quite a lot, this is just one issue with CeFi. The issue is too many people have to take a cut.

Often depicted in news as the greedy middleman but really just a person taking advantage of a financial system. As I’m sure you do right now reading this article, humans are greedy and rarely put anyone apart from themselves. So a new way to guarantee the survival of this planet has risen from the ashes. Why don’t we allow DeFi to govern our money, therefore we can almost guarantee no one will forget their morals and take a huge cut.

What we could see


For example these are the rates Defi Pulse shows for staking USDT (a stable (ish) coin). In which the highest interest rate offers 90000 times greater APY vs the 0.01% traditional finance interest.

But why are DeFi rates high and CeFi rates low ?

It all boils down at the end of the day to how many people take a cut. In CeFi there are so many people involved in transactions that have to be paid. As decentralisation practically means you can transaction p2p, not many people will have to take a cut. This allows protocols to offer extremely attractive interest rates. This concept is still very new and nowhere near adoptable, but the concept is coming to life. There have been great hacks recently which point out floors in this new system but the idea is there !


The rocky road to high interest rates

If we peel back all the glamour DeFi as it is now there are some huge flaws. Recently Polygon, a Defi platform, had a hacker that stole over half a billion dollars !

CeFi gives us the ability to reverse payments meaning if you got scammed you can get it all back. With DeFi once it’s gone its gone, think about it, who are you going to call ? Ghostbusters ?

Hackers protected by an encrypted wallet address and anonymous pseudonyms will soon have access to billions. Many people believe that hackers who have been in the space for some time have planted bugs in smart contracts and are just waiting till the contract is dealing with billions. Then overnight they will drain the protocol. This is a huge problem as you would not get this with CeFi.

True decentralisation will be measured on a spectrum compared to centralisation.

The traditional banking system will always be there for the conscious saver. But for the risk takers of society DeFi interest rates are a no brainer. As contracts and protocols mature these hacks will become less frequent, but believe me we haven’t seen anything yet.

Think back to when tech was first bombing, an everyday person with IT knowledge could hack into a computer. Cyber security in Crypto will come soon !

Is it all one big bubble ?

Bitcoin was first introduced in 2009, it’s only 12 years old. Ethereum brung Defi into the light when it was launched in 2018, it’s only 3 years old.

The concept just hasn’t had the time to show what it really is. We are nowhere near the level of innovation this could and should be. Although this boom is all very exciting we must realise what we are actually doing, trying to kill a infrastructure that has been in place for thousands of years.

What do governments think ?

Imagine you are a wealthy banker making millions of pounds every year with a nice town house in the city etc. All your career and wealth has been from this one system. You have seen how the world has changed due to this fool proof system. Now a thing called Bitcoin has come about made by an anonymous person and says it’s going to change the world. Then you see what it is being used for and how young it is. You would be crazy to back it with institutional grade money,

old money does not invest in new ideas.

And why would it ? They have a foolproof system so why would they jeopardize that.


With time this will change, all they want to see is consistency. At least 15 years of it working with no changes. Think of it like a 15 year timer and whenever you change the protocol that timer re sets. Bitcoin hasn’t changed that much since the original whitepaper. So the likelihood of an institution investing is very high. But as Ethereum is now being switched over to ETH2.0 that clock has reset !

Visioning the new world

What could this be ?

A truly fair democratised financial system.

Say the 15 year timer had been completed then this tech will be in an extremely powerful position.

Governments alike minting their native currency on chain. Financial systems re developed and put on chain. Ownership now being in the shape of NFT’s. Social tokens ruling life as we know it. This tech is so advanced in human history students of the future will look back to this century as when the new world was born.

But who will govern this new world ? The same governing the old world or a new hierarchy ?

I envision a new decentralised financial system.

by Lorimer Jenkins


Disclaimer : I am not a financial advisor these articles for education purposes, new articles released by 12pm BST every day.



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