This refers to crypto-currency projects that provide lending and borrowing services. These include both well-known exchanges and projects intended solely for lending: Binance, Aave, Compound, Nexo, Unchained Capital and others. While recognizing the talents and enthusiasm of Web 3 and fintech developers, we will briefly consider the financial model used by many of them, its efficiency for the economy, and impact on society. Since we all believe here that DeFi is our bright future.
Working on infrastructure, leveraging great intellectual resources, creating code, respected developers did not really think about the operating model of their platforms. Unfortunately, yes. They simply copied this model from banks, and banks took it from the Middle Ages. This model is known as usury, which contradicts decentralization by transferring all money and power into the hands of the rich, impoverishing and making everyone else poor.
The essence of it is simple: The creditor lends his money to the entrepreneur and gets it back with profit, regardless of the outcome of the deal. The creditor does not participate, does not risk money, is not a partner, does not need to know anything about the borrower and his affairs. Because if the borrower does not return the money with profit at the appointed time, his collateral will become the property of the creditor and the creditor all the same will make a profit.
We see that only the interests of one party are taken into account here — the interests of the creditor. And the borrower’s rights are violated. And this injustice creates a serious vulnerability, the consequences of which have a devastating impact on the whole society and ecology, poses a threat to security, and leads to local and global problems. Thus, not organically, by constantly receiving profits and money, creditors can create monopolies, who accumulate money and power into their own hands, destroying private businesses.
Market manipulation, corruption, fraud, poverty and destitution of the majority of society, growth of crime, increased social inequality, unemployment, environmental pollution and many, many problems stemming from this.
For example, corporations can obtain valuable natural resources belonging to millions of people, bypassing the people, through corruption. Do you think small or medium-sized private businesses can buy these valuable raw materials at the prices corporations get? No, of course not, because the corporation will buy it cheaper by bribing people from the government of the desired country. In this case, there can be no talk of healthy competition.
In order not to make this article voluminous, we tried to convey only the essence of the problem here.
No doubt that the “one — way street” that we call usury can give rise to monsters, in comparison with which a corporation that violates people’s rights, while creating a useful valuable product, will seem like child’s fun.
The majority of society that has no income has several options. Here are some of them: receiving unemployment benefits where they are paid; working for corporations where there are production facilities; or getting money by committing fraud, violating the rights of other people, robbery and other similar negative options.
The solution here is to replace the outdated financing model with one that meets modern realities, the principles of equality and justice. If the word “business” implies creating value, we must accept the objective reality that no business can exist without risk. Any entrepreneurship carries the risk of losing money, resources, etc. It is known that only a small part of startups achieve success, the bulk close. So anyone who wants to make money must take these risks and be prepared to lose their investments. This is the norm.
This is called a partnership, which is fundamentally different from parasitism. Entrepreneurs and creditors must have equal rights, equal partnerships, where each partner’s share is determined in accordance with their contributions. And this contributes to the development and strengthening of contacts, social ties, trust, mutual understanding between different classes of society, and the creation of strong communities.
Thus, optimal distribution of wealth in society occurs, fostering business and innovation development, as human rights form the foundation of the economy.
