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COVID-19 and the Decentralized Economy

by Popcorn_CApril 21st, 2020

Too Long; Didn't Read

Testing the System

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Testing the System

The COVID-19 pandemic has proven to be a humanitarian crisis and tragedy with dire economic consequences. Unprecedented declines in global trade and travel along with an ordered lockdown of a large proportion of the global workforce have led to drastic decreases in productivity, with uncertainty reigning supreme in markets.

In these tough times, the centralized economic processes have been heavily tested, and the cracks in these systems have become apparent.

Fraught with intermediaries and single points of failure, these systems aren’t structurally equipped to deal with crises. It is in light of these weaknesses that we must turn to the incorporation of distributed and decentralized systems and technologies into current systems and move towards a more

decentralized economy

Centralized Banking’s Lending Woes

Small nonessential businesses are suffering greatly, and many will not be able to get through the crisis without financial aid. The Paycheck Protection Program, part of the government’s $2 trillion stimulus bill, will make available $349 billion in forgivable loans to small businesses in order to help them pay their workers and keep afloat. And while this will provide a great deal of relief, banks foresee various problems that will arise during the distribution process.

Most importantly, with the overwhelming demand, lenders predict that these funds will quickly run out and fall short in efforts to stop the growing wave of job losses. Lenders also face the difficult task of choosing between promptness and thorough scrutiny.

With many banks now processing 10 times their normal monthly loan volume, preventing fraud will be a much more difficult task. With scores of businesses, jobs and lives in the balance, and centralized banking overwhelmed, it is time to look for an

alternative

Decentralized Economy as a Solution

The widespread adoption of decentralized, peer to peer lending could largely help meet the overwhelming demand for capital, especially during times of crisis.

The decentralization of the lending process will vastly increase the supply beyond just federal government funds by effectively crowdsourcing the capital instead. Accessibility to this capital would require the efficient structuring of two different processes: becoming an eligible lender and processing loan applications.

These processes can be effectively streamlined in a decentralized manner using blockchain technologies. Sperax can verify the legitimacy and eligibility of counterparties involved in a way that shifts the paradigm of trust from the transactors to the technology. Furthermore, with immutable records, which are open and universally auditable, we also provide transparency to all transacting counterparties, greatly accelerating processing times, while still enabling robust fraud prevention.

The proposition of the decentralized economy provides a divide and conquer approach to crisis-time management of demand for economic relief. In times marked by financial uncertainty and unrest, blockchain systems can be used to provide efficiency, trust and transparency through decentralization and disintermediation to build a more resilient economy.