Decentralized finance was sold as a clean break with the banking establishment, a way to rebuild money and markets from scratch for everyone locked out of the old system. Instead, most of what we now call DeFi is grafted directly onto the very institutions it claimed it would render obsolete.
For people without bank accounts or reliable access to the financial system, DeFi is still remote, confusing, and largely unusable. The bottleneck is not clever smart contracts or a lack of innovative applications. The bottleneck is the underlying rails: money, identity, connectivity, and legal infrastructure that remain firmly in the hands of traditional finance and traditional states.
DeFi’s founding story sounds almost self‑evident. Billions remain unbanked or severely underbanked. Legacy finance is slow, fee‑heavy, exclusionary, and structurally biased toward incumbents. Blockchains, on the other hand, are open, permissionless, and globally accessible. Put those together and you get a seductive conclusion: DeFi will “bank the unbanked” and bypass the gatekeepers.
It’s a powerful narrative. It is also, at this stage, largely disconnected from how DeFi actually works in practice.
After half a decade of relentless experimentation, we do have a robust parallel financial architecture on public blockchains: lending protocols, automated market makers, derivatives platforms, structured products, yield markets. Yet the entire stack is anchored to the incumbent system. Instead of replacing the rails, we’ve built sophisticated layers on top of them. That distinction is not semantic; it explains why DeFi’s real‑world impact remains so constrained.
Look at the base layer of most on‑chain activity: stablecoins. Tokens like USDT and USDC, which power everything from trading to lending, are overwhelmingly backed by assets custodied in banks or invested in traditional short‑term instruments like Treasury bills and money market funds. Their stability ultimately depends on the robustness of the banking system and sovereign debt markets, not on some native crypto economic engine.
Access to those stablecoins is similarly mediated by old‑world institutions. Fiat on‑ramps and off‑ramps are typically licensed exchanges, payment processors, and neobanks that decide who can convert local currency into crypto and who cannot. These entities follow KYC and AML rules, comply with sanctions regimes, and routinely deplatform users based on geography, documentation, or risk profiles.
Data is no different. Widely used oracle networks fetch prices from centralized exchanges that themselves live downstream of banks and regulators. Even the simple act of interacting with DeFi usually relies on app stores, mainstream browsers, cloud infrastructure, and card networks — all regulated choke points embedded in the existing financial and legal order.
This is not an indictment of any particular protocol or company. It is a structural diagnosis. DeFi did not uproot traditional finance; it enveloped it. That wrapper has generated real benefits: better capital efficiency, faster settlement, composability between financial primitives, and new market structures for those already plugged into global capital flows. But for people shut out of those flows, very little has changed. DeFi’s underlying pipes still run through the same walls.
The core misunderstanding is to treat “the unbanked” as a simple market segment waiting for a new app. In practice, exclusion is an infrastructure problem, not a UI problem.
Someone is unbanked not because they lack a clever yield aggregator or access to a perpetuals DEX. They are unbanked because they lack reliable identity documents, stable and affordable internet, secure custodial options, predictable income, and trustworthy mechanisms for resolving disputes or fraud. They live in environments where local currency can lose value overnight, institutions are fragile or corrupt, paperwork is inconsistent, and access to services is intermittent and highly politicized.
DeFi, by contrast, quietly assumes the very conditions many excluded populations do not have. It assumes stable broadband or mobile data, consistent electricity, and a secure device that is not routinely stolen, shared, or compromised. It assumes the existence of state‑issued identity that can pass KYC checks at regulated on‑ramps. It assumes users can obtain stablecoins in the first place, store private keys without losing them, and understand volatility and risk well enough to tolerate sharp drawdowns or contract failures.
For insiders, these assumptions are invisible because they mirror their lived reality. For the global majority who do not enjoy that stability, these assumptions are disqualifying.
How did DeFi drift so far from its founding promise? The industry followed the path of least resistance. Rather than waging a slow, uncertain battle to reconstruct financial infrastructure end‑to‑end, it prioritized what could be built and monetized quickly within the existing order. That meant optimizing for speed, capital efficiency, and narrative momentum in jurisdictions already rich in capital and legal clarity.
It was always easier to build structured yield products for hedge funds than payment rails for informal workers. Simpler to plug into banks than to replace them. More straightforward to mirror existing derivatives and credit markets on‑chain than to rethink market design from first principles for small merchants or migrant workers. These were rational decisions for survival and growth. Over time, however, pragmatism hardened into structural dependence.
Today, DeFi is not just loosely connected to traditional finance; it is deeply entangled with it. Liquidity in DeFi follows the cycles of mainstream capital markets. Stablecoin stability is tethered to the health of banks and sovereign issuers. Regulatory shifts in major economies can abruptly shrink or redirect liquidity pools. If large institutions pull back, volumes and yields fall. If a banking partner is cut off, a key on‑ramp disappears.
Calling this arrangement “decentralized” obscures the reality. It is closer to an overlay network that siphons efficiency and new business models from the incumbent system while remaining hostage to its rules and shocks. It is, in effect, financial parasitism with a better interface and programmable settlement.
That dependence imposes a ceiling on what DeFi can do. As long as its core primitives — money, identity, pricing, liquidity, and access — are outsourced to traditional players, DeFi cannot structurally serve those that traditional finance excludes. It can repackage risk, unlock novel trading strategies, and reduce frictions for already banked users. It cannot, on its current path, fulfill the promise of a parallel financial system for people and jurisdictions written off by the old one.
This is why, despite years of innovation, DeFi adoption still tracks wealth and connectivity more than need. Usage is clustered among traders, funds, technologists, and institutions in relatively affluent regions. The capital gravitates toward arbitrage, leverage, and speculative flows, not toward working capital for street vendors, remittance channels for migrant workers, or savings tools for families in fragile states.
The uncomfortable conclusion is that DeFi, as currently constructed, has optimized for capital, not for humans.
Reorienting toward people rather than capital requires confronting the unglamorous work of rebuilding financial rails. That means focusing less on incremental yield and more on primitives like payments, savings, identity, and credit that function under real‑world constraints: patchy connectivity, low literacy, regulatory hostility, and political risk.
For example, the industry could prioritize protocols that tolerate intermittent connectivity and cheap devices, such as transaction models that sync when a user briefly connects, instead of assuming a constant broadband link. It could push for wallet architectures that integrate social or community‑based recovery in a way that matches local trust structures, acknowledging that “never share your seed phrase” is unrealistic in environments where devices are communal or frequently stolen.
On the monetary side, DeFi needs to wrestle with the fragility of its dollar dependence. Dollar‑pegged stablecoins solve volatility for many users, but they inherit U.S. regulatory risk and banking system fragility. More work is needed on diversified collateral models, region‑specific stable assets, and perhaps hybrid designs that can gracefully degrade when access to the dollar system is choked off.
Identity is an even bigger fault line. The current model assumes state‑provided documents funneled through regulated intermediaries. A genuinely alternative set of rails might explore decentralized identity frameworks tied to reputational data, transaction history, or community attestation while still protecting privacy. Without such alternatives, the “permissionless” promise of DeFi collapses the moment a centralized on‑ramp refuses to serve a user or an entire region.
Dispute resolution and recourse are rarely discussed but are critical to everyday finance. In traditional systems, you can often reverse fraudulent charges or challenge unauthorized debits. In DeFi, the default answer is “you signed the transaction; it’s final.” That is not a serious proposition for vulnerable populations who are far more exposed to coercion, scams, and misinformation. Building flexible, opt‑in layers for arbitration, mediation, and transaction controls — possibly anchored in local institutions or cooperatives — is necessary if DeFi is to be more than a high‑stakes casino.
There is also a political dimension. Financial exclusion is often not a bug but a feature of how power is exercised. Migrant workers, opposition groups, small informal businesses, and residents of sanctioned or unstable states are excluded by design. Any attempt to offer them parallel rails will face resistance. Designing DeFi systems for this reality means embracing jurisdictional diversity, resilience against censorship, and the ability to operate in legally hostile environments without depending on a small set of centralized chokepoints.
Crucially, building new rails does not mean cutting all ties with existing finance overnight. A realistic path forward is layered: use traditional infrastructure where it is reliable and inclusive, but deliberately invest in alternatives where it is not. That could mean routing high‑value institutional flows through bank‑backed stablecoins while building regional, community‑governed payment networks for small transactions that can continue to function if banks pull out or regulators overreach.
To move beyond lip service, founders, investors, and developers will have to recalibrate incentives. As long as success is measured primarily in total value locked, trading volume, and yield, the temptation will always be to chase the most profitable capital flows, not the most impactful use cases. New metrics — such as number of unique low‑balance wallets, volume of small‑ticket cross‑border transfers, or usage in high‑inflation environments — would at least start to align narratives with outcomes.
There is also a product challenge: tools must be usable in the real world, not just by crypto‑native power users. That implies interfaces in local languages, support for low‑end devices, offline‑friendly design, and education that starts from people’s actual financial lives rather than from crypto jargon. A lending protocol that technically “works” on‑chain but cannot explain itself to a street vendor in clear, context‑relevant terms has not solved the access problem.
Ultimately, DeFi must decide what it wants to be when it grows up. One path is to embrace its current role as a high‑efficiency layer for speculative capital, deeply integrated with banks, funds, and regulators, gradually subsuming parts of traditional markets. There is nothing inherently illegitimate about that trajectory, but it should be acknowledged honestly and stripped of the rhetoric about banking the unbanked.
The other path is harder: to accept that displacing financial rails, even partially, is a multi‑decade infrastructure project, not a quick token cycle. It requires engagement with messy local realities, uneven regulation, political backlashes, and infrastructural gaps that cannot be solved purely in code. It calls for patience, compromise, and an entirely different risk‑reward profile than building the next leveraged trading engine.
If DeFi is serious about its original promise, it must stop pretending that wrapping traditional finance in smart contracts is enough. It needs to confront its dependencies, design for people who are not already advantaged, and commit to slowly, deliberately, and often unglamorously rebuilding the rails themselves.
Until that happens, DeFi will remain what it has largely become: a sophisticated extension of the existing financial order, not a genuine alternative for those it has left behind.