What exactly is a NeoBank that is powered by DeFi?

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In the last year and a half, decentralised finance has grown to be a significant sector. Additionally, NeoBanks have grown to be a significant business in recent years.

That said, NeoBanks and DeFi have a lot in common and a lot in common with each other. DeFi-powered NeoBanks are a combination of the two types of NeoBanks.

DeFi-powered NeoBanks and DeFi apps will be discussed in detail in this article.

A NeoBank is what exactly?

NeoBanks are essentially internet-only financial institutions. It is nearly identical to a typical bank in terms of functioning, however there are no actual bank branches.

With 13.1 million users, Chime is the most well-known NeoBank in the United States.

Despite their newfound freedom, NeoBanks are nonetheless subject to the same rules as traditional financial institutions. Again, the main distinction is that banks no longer have actual bank locations to deal with customers at.

NeoBanks’ major selling point is the lack of bank branches, which results in cheaper fees for clients.

What is a DeFi app, and how does it work?

In other words, a DeFi application is a decentralised financial app. Like Ethereum or Binance Smart Chain, these apps are housed on a blockchain that supports smart contracts.

Services like bitcoin trading and loans are available through these apps.

Everything is automated since they are decentralised. Due to the fact that DeFi applications are essentially computer code that performs certain operations automatically, there are no intermediaries involved.

If you buy bitcoin on Uniswap, for example, the entire transaction is automated from start to finish. Naturally, centralised exchanges are dependent on the same level of automation as decentralised exchanges.

Instead, Uniswap writes the technology to make trades easier rather than complying with banking rules. Liquidity is provided by the market, not the exchanges.

A DeFi app can be explained in that manner.

Consider the application to be a few lines of code that help to streamline interactions between everyday consumers and businesses. People, not a centralised group of bankers, provide the liquidity on DeFi applications.

As a consequence, everyone involved pays far less in fees. Furthermore, because DeFi isn’t a bank, it’s exempt from compliance with banking rules.

They’re the ones who build the software that makes transactions possible. Individuals are responsible for providing all of the cash and liquidity necessary to keep the DeFi app running.

NeoBanks that are powered by DeFi are known as

There is no such thing as a “DeFi-powered NeoBank.”

Since DeFi has nothing to do with NeoBanks, the word “DeFi” is a misnomer in and of itself.

You should keep in mind that a NeoBank is nothing more than a bank without any physical branches. A cryptocurrency bank must still adhere to all the same rules as a regular one.

Because they are still banks, NeoBanks also only deal in fiat money.

Because they are housed on the blockchain, DeFi apps only use bitcoin. Despite the fact that stablecoins (like as Tether, Dai, and others) exist on the blockchain, they are still referred to as blockchain tokens and not fiat money.

To summarise, NeoBanks powered by DeFi are a myth. When a company employs terms like these, it’s trying to wow potential consumers.

As previously indicated, a NeoBank cannot be fully fueled via DeFi.

It’s nothing more than a ploy employed by banks to gain new business.

DeFi Is Going to Destroy the Banks

DeFi protocols will utterly demolish the current financial system, which is the underlying goal of all of this.

NeoBanks like Chime, which compete with traditional banks like Bank of America and Wells Fargo, are already cutting into the market share of the latter.

NeoBanks have cheaper fees since their payroll is less and they do not have to pay rent, which is why.

DeFi protocols go one step further by providing the same services as banks do (i.e. earning interest on a deposit) at a rate that is even better than banks.

A vastly improved ratio.

Your money in a Bank of America account yields around 0.1 percent interest annually.

In other words, that’s not much.

As an alternative, you may earn a secure 10 percent APY each year by lending liquidity to an exchange like Uniswap or Sushiswap.

For a pool as safe as a stablecoin, DeFi’s 10 percent is actually rather low.

As a result, the old banking system will eventually come to an end. It’ll be a lot like how the internet wiped out the newspaper and magazine industries when it first came out.

Newspapers and periodicals are still around, but they’re not what they were in the 1980s and before.

Banks’ demise as a result of DeFi will take time. DeFi won’t have a major impact on the industry for at least a decade.

However, in 2021, newspapers and record labels are still in business, despite the internet’s 25-year-long destruction of both industries.

Banks are expected to follow in the footsteps of newspapers and record labels and go out of business soon.

Lastly, consider the following:

That’s all a DeFi-powered NeoBank can accomplish, then.

It doesn’t do anything at all. It’s just a regular bank that’s utilising DeFi as a marketing gimmick to get new clients. It also demonstrates that banks see DeFi as a danger, as they’re employing industry jargon to draw attention to their products and services.

NeoBanks, on the other hand, are a novel idea that has arisen in the last ten years. Despite this, they remain a centralised financial institution that will come under increasing pressure from the several DeFi protocols that develop in the coming years.