Taking Banking back to the drawing board

There’s something seriously wrong with our banking system. To fix it, we need to do a 180.

The fractional reserve banking system is a fraud. Together with the misuse of interest rates by central banks, the fractional reserve system is the root cause of most evil — generating inequality and financial crises that ruin lives and livelihoods.

The current fractional reserve system allows banks to create money out of nothing, robbing savers by making their savings worth less and less. This spiral of permanent inflation creates the wrong investments — investments that would never have been made at free market interest rates. This generates bubbling economic cycles that destroy a society’s wealth, time and time again.

Credit Money Creation
How banks create money, in a nutshell.
Banks wouldn’t be able to mount this operation if there were no lender of last resort to bail them out of eventual insolvency. That lender is none other than the much deified Central Bank.

To right the wrong that banks bring to the world, the only correct decision would be to abolish the perpetrator and its tool: the Central Bank, because it is a naturally insolvent institution and generates moral hazards; and the fractional reserve system, because it is a blatant fraud.

But talk of abolishing either is inconceivable on the hopeless side of finance. Their survival and proliferation are guaranteed by the almighty state. The state adds layer upon layer of regulations, with regulators supervising other regulators, who in turn watch over several other regulators.

The fence of regulation around banks keeps them happy and you in the dark, even when it is your money inside.

We have a problem with that — and with abusive central authorities in general.

To us, there is no excuse for the corrupted nature of traditional banking and the obsoleteness of its mechanism. The world has a dire need for a better banking model.

So we moved on to a level playing field — DeFi.

Decentralization of finance gives control back to the users, replaces the need for trust in a single actor and brings peace of mind to the whole ecosystem.

Banks are inherently centralized structures and any sort of decentralized technology is therefore not possible within the current core banking mechanism.

The new core banking systems and applications need to be built on a framework aligned with the best of human values: transparency, honesty and efficiency. These three factors are not negotiable and will be the key for any new implementation of banking and finance.

Core banking needs to be redone from scratch, and there is no way around that.

Here is where CrescoFin comes in.

We believe that a distributed system of deposits and loans linked to the real economy, backed by insurance and built on open-source blockchain technology has the potential to replace the core functions of banks. Depositors earn higher returns for less risk than keeping their money in a bank account.

The superior returns can be generated by using short-term liquidity to purchase invoices to be paid by major investment grade companies. A blockchain-based system between the seller and buyer of the invoices reduces disputes and fraud, allowing attractive insurance to be put in place.

Besides enabling better returns, our model builds a real safety net underneath the deposits. Unlike the perceived security in banks (and governments’ deposit guarantee schemes), the insurance coverage is complete (covers principal + interest) and is in the depositor’s name. There is nothing that compromises the depositor’s ownership and control over their deposit and returns.

 

The fence of regulation around banks keeps them happy and you in the dark, even when it is your money inside.

CrescoFin