Jorick Defraine

In 2017, 1.7 billion adults worldwide didn’t have access to basic banking services. That’s roughly 1 in 4 adults globally. Ethereum and decentralized finance promise to change this by creating an open, permissionless financial system. But does it actually deliver on that promise?

The Financial Inclusion Problem

Traditional banking excludes billions of people, especially in developing countries. The reasons are well-known: lack of infrastructure, high costs, documentation requirements, minimum balance restrictions, and geographic barriers.

Ethereum’s pitch is simple: if you have internet access, you have access to DeFi. No bank account needed. No credit check. No intermediaries taking a cut.

But it’s not that simple.

How Ethereum Improves Financial Inclusion

Scalability Through Layer 2s

Ethereum’s base layer was notoriously expensive during 2021’s DeFi summer. Gas fees of $50-100 per transaction made it inaccessible to anyone who wasn’t moving significant capital.

Layer 2 solutions changed this. Arbitrum, Optimism, and Base brought transaction costs down to pennies. Suddenly, DeFi became viable for smaller users.

The reality: L2s made Ethereum more inclusive, but we’re still far from serving the unbanked. Someone earning $2/day isn’t going to experiment with DeFi when a mistake could cost them a week’s wages.

Transparency and Traceability

Every transaction on Ethereum is publicly verifiable. This creates unprecedented transparency compared to traditional banking, where your transaction history is locked in proprietary databases.

For remittances, this is powerful. You can track exactly where your money is at every step. No black box. No “processing time” excuses.

Personal take: This transparency is underrated. I’ve used Etherscan to verify transactions in real-time, something impossible with traditional wire transfers that take days and provide zero visibility.

Lower Costs (In Theory)

Ethereum eliminates intermediaries. No bank branches. No compliance departments for every transaction. No correspondent banking fees.

The promise: significantly cheaper financial services.

The reality:

So yes, Ethereum can be cheaper. But only if you’re using the right infrastructure at the right time.

The Barriers to Adoption

1. Technical Complexity

Let’s be honest: DeFi is complicated.

To safely use Ethereum, you need to understand:

Reality check: If you can’t explain it to your grandmother, it’s not ready for mass adoption. We’re asking the unbanked to become their own bank, security expert, and customer support all at once.

I’ve been in crypto since 2019, and I still occasionally feel uncomfortable interacting with a new protocol for the first time. Imagine someone who’s never used a computer doing this.

2. Volatility

Stablecoins solve this partially, but they introduce new risks (USDC depeg during SVB crisis, UST collapse, regulatory uncertainty).

For financial inclusion, volatility is a dealbreaker. People living paycheck to paycheck can’t afford to see their savings fluctuate 5-10% day-to-day, even with stablecoins.

The Luna/UST collapse in May 2022 wiped out an estimated $40+ billion in value. Many retail users in countries like South Korea and Turkey lost their savings. This is the opposite of financial inclusion.

3. Regulatory Uncertainty

The Gary Gensler problem: when the SEC Chairman can’t give clear guidelines to US companies about what is and isn’t legal, how are users supposed to navigate this?

The European approach (MiCA) is more structured:

The Markets in Crypto-Assets regulation creates a framework for:

What MiCA requires:

This is better than US regulatory chaos, but it also creates barriers to entry. Compliance is expensive, which means fewer service providers, which means less competition, which means higher costs for users.

What Needs to Improve

1. Better User Education

We need better onboarding. Not “read the docs” or “DYOR.” Actual educational infrastructure that meets people where they are.

What’s working:

What’s missing:

2. Enhanced Security

The “be your own bank” model has a major flaw: if you mess up, there’s no customer support to call. No fraud protection. No chargebacks.

We need:

During my time at Morpho, I saw firsthand how much work goes into security. Multiple audits, bug bounties, careful deployment processes. But most protocols don’t have this level of rigor.

3. Clear and Adapted Regulation

MiCA is a step forward, but it’s not perfect. We need regulation that:

The current state where every country has different rules makes it nearly impossible to build compliant, global financial infrastructure.

My Take: Are We There Yet?

Short answer: No.

Ethereum has created powerful financial infrastructure, but we’re still in the “early adopter” phase. The unbanked aren’t using DeFi en masse, and won’t until we solve the usability and education problems.

What gives me hope:

What concerns me:

Financial inclusion through Ethereum is possible, but it requires us to be honest about where we are today. We’ve built incredible infrastructure, but we’ve mostly served crypto-native users, not the financially excluded.

The real test will be whether we can simplify this technology enough to serve its original purpose, or whether it remains a playground for degens and VCs.

This article is based on my research from May 2023, including analysis of the World Bank’s Global Findex Database, Morpho’s protocol design, and the European Union’s MiCA regulation.

Views expressed are my own and do not represent any organization.

#Ethereum #Defi #Financial-Inclusion #Regulation