Democracy:

• government by the people; a form of government in which the supreme power is vested in the people and exercised directly by them or by their elected agents under a free electoral system.
• a state of society characterized by formal equality of rights and privileges.

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Finance:

• the management of large amounts of money, especially by governments or large companies.

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To truly democratize finance is to give a proportionate amount of control over the management of money by large entities to the people who have supplied this money.

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The financial system of today is not a democratic one. A few large institutions control most people’s money and offer them very little control over how it is managed. Transactions are done behind closed doors and little information is offered to customers about when, where and how their money is invested. The bank’s clients are required to trust that they will act honestly and in the best interest of their clients' money.

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Web3.0 and blockchain technology aim to provide an alternative to this disproportionate distribution of power. 

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In order for a democracy to function, citizens have to trust their government will act in their best interest. This is true of financial institutions as well. But trust is a most fragile thing, that once broken, cannot easily be repaired. Blockchain technology removes this weak link in the democratic chain. A user of a protocol built on a public blockchain does not have to trust that the protocol will act honestly. Its actions are enforced programmatically and can only ever act in the way that they have been written. This code is available to view publicly and any user is able to verify whether or not a protocol will do as it promises.

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Transparency is required to guarantee accountability and for users to make informed decisions regarding money. Blockchains are designed to be immutable public ledgers, where all transactions are recorded and are unalterable. This provides the unavailable transparency that is lacking elsewhere. Members of the public are able to query an address’s activity and see all transactions from the time of its creation up until the last mined block. This minimizes the level of trust needed between users and protocols.

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Choice does not truly exist in the traditional financial system. There are only a handful of institutions to choose from. They control how money is transferred between accounts and communication between them is inefficient. All the while, taking a fee for everything they do. Blockchains allow peer to peer transfers where one account can choose to send another account funds globally, within minutes, without an intermediary taking a fee or having to approve it. If a protocol fails to deliver on its promises, users are able to easily exit and have a myriad of decentralized finance products to choose from, often offering users more than just good interest rates.

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The rise of the veToken, or voting escrow token, has given life to a new form of financial control for people. Users of a protocol can choose to lock their protocol tokens for a certain amount of time, normally 1 - 4 years, in exchange for certain voting rights and benefits within the protocol itself. These can be anything from how much fees are directed to a certain liquidity pool to how the protocol invests its profits along with financial incentives like higher APY’s (Annual Percentage Yield) and voting rewards. This makes for a synergistic relationship between users and protocols. Users are incentivised to act honorably because the growth of their locked assets is connected to the growth of the protocol. Protocols gain a better understanding of their users and have stable liquidity locked away increasing their longevity.

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Imagine you could vote on whether the interest rate on your savings account should increase or which currency your bank will accept next…

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Third parties who have a large interest in the underlying protocol often offer rewards to users who delegate to them, allowing the end user to gain added benefits from being a veToken holder. If the protocol is well designed, they will have safeguards in place to prevent any one party from holding too great of a share of voting rights. This way, a symbiotic relationship forms and an ecosystem is created.

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Blockchain technology ultimately aims to give people greater control over their finances by creating a trustless relationship between users and providers, offering a wide variety of financial products to choose from, creating new financial and governance incentives and allowing access to a transparent ledger of all transactions ever made on it.

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As in all things crypto, with great power comes great responsibility. The phrase ‘Do Your Own Research’ has never been more relevant.