“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete” _ Buckminster Fuller

This quote was ingrained in me when I first came across crypto in 2013. Bitcoin was heralded as the beginning of a new financial system. More than a decade later, I don’t see the efficiencies of decentralised technologies actually benefitting the people around me. The masses that it was supposed to help.

If you breakdown the world into the biggest industries, banking is a juggernaut, and it’s one of those unsexy businesses that just prints money. As much as I hate most banks I deal with, the cabal gets away with giving us a shitty experience and gouging fees.

Here are some numbers to put into perspective the banking business - In 2023, global commercial banks were expected to have a total revenue of $2.8 trillion. The market cap of this sector is around 6 trillion. The financial services market is expected to reach $33.54 trillion by 2024, which would mean that financial services comprise about 31% of the world's economy.

That I believe sets the stage for an incumbent that is ready to be fundamentally disrupted, and I strongly believe the traditional fintech firms cannot do that as they are only improving the UX but not really the fundamental cost structure of the bank, which forms the biggest point of leverage for decision makers - investors & borrowers.

At a very fundamental level, what a bank does is very simple. It takes depositor money (short term borrowing) and lends it long long term borrowers (mortgages etc). All that a bank does is facilitate this transaction and add a layer of trust in the process for both participants. The bank for this service makes a cushy $691 billion annually(adding net interest income from 23q3 to 24q2) just in the US or around a 3% in NIM (net interest margin - the difference between what the pay depositors to what they get from borrowers).

source : (https://www.bankregdata.com/allYD.asp)

This fee even as absurd as it is, made sense in a world where we didn’t have systems to trust facilitate the transaction. It was too much work for an investor to gather lots of people to fund multiple mortgages in a low risk way. And for the borrower it was hard to source investors, and then be sure the investor will actually give them money for the mortgage. It would have been a very clunky UX and this makes a bank a critical institution.

But this system is particularly redundant when we have code that can handle a lot of these process. And code that cannot be tampered with, makes this system more robust & transparent than existing systems. You don’t need hundreds of thousands of people to manage and account for a system this clunky.

In the paragraphs ahead, I want to make a case as to why there are many structural inefficiencies in the existing system that the crypto/blockchain system not only solves for but actually makes it 10-100x better as a holistic system. I do believe that this may take out a few more years to play out because of UX issues, but it’s fundamentally inevitable.

Banks make a large share of their income from mortgages, as it’s the best form of lending from a risk reward basis with close to infinite demand. According to this - around 32% of income came from mortgage or mortgage related lending/investing - https://www.bankregdata.com/allYD.asp.