Can DeFi Save Sinking Economies

When Venezuela’s inflation hit 189.8% in 2023 [Central Bank of Venezuela, 2023], Maria’s life savings of 200 million bolivars (enough for a house in 2018) became worthless. Her story is not the only one, as the traditional financial systems are collapsing globally.

People in Zimbabwe were forced to switch to USD for everyday transactions after Zimbabwe’s currency crashed by 680% against USD [Reserve Bank of Zimbabwe, 2023], while citizens in Lebanon lost access to $140 billion in bank deposits [World Bank, 2023].

The transition to decentralized finance (DeFi) was unavoidable when the conventional financial system crashed. Stablecoins were adopted by Argentinians facing an 85% devaluation of the peso and undergoing devalued inflation [Central Bank of Argentina, 2023]. Similarly, Iran’s $1 billion Bitcoin mining industry circumvented SWIFT sanctions imposed on it [Elliptic, 2023].  

DeFi has served as a life raft for many Afghan women after their NGOs were banned by the Taliban. According to a [UNDP 2023] report, 93% of operating women’s NGOs in Afghanistan used USDT.  

Though the million-dollar question still remains, can the sinking global economy be revived through DeFi?

Let’s find out 🚀

The Crisis in Traditional Economies

Over the past few years, the traditional economies worldwide have faced incredible challenges: soaring inflation, collapsing banks, and desperate capital controls. All these crises are interconnected and often feed off each other, worsening the financial stability.

Inflation Rates (2023-2024)

Owing to factors such as monetary financing, fuel subsidies, currency crises, over-expenditure, and an economy in shambles, it comes as no surprise that inflation is rising at an alarming rate globally.

Table 1: Countries with Highest Inflation Rates (2023–2024 Projected)

Currency Devaluation Crisis (2023-2024)

Many nations’ currencies fell sharply against the US dollar in recent years:

Table 2: Top worst currency devaluations compared to USD

Capital Control in Crisis Economies

Many nations got strict on their cash rules to keep things afloat when costs skyrocketed and they ran low on foreign money. The success of these tactics varied  hitting everything from minor successes to total disasters.

Table 3: Countries with strict capital controls

Collapsing Banks 

Significant financial crises have struck a number of nations within the last five years, brought on by political unrest, regulatory failures, and macroeconomic shocks. Big financial hits, a drop in trust from the public, and a rush for instant bailouts or structural changes have all resulted from these disasters.

Table 4: Bank Failures and Bailouts (2019-2024)

How DeFi Can Save Sinking Economies

The traditional financial system has let billions of people down, according to a 2022 report from the World Bank Group, 1.4 billion adults worldwide do not have access to even basic banking services. Where traditional systems fail, Decentralized Finance (DeFi) is proven to be a lifeline by providing worldwide access, inflation resilience, and financial autonomy.

Complete Control Over Your Funds

When a country’s economies fall apart, its government is notorious for imposing capital restrictions, such as freezing accounts or limiting the number of withdrawals, to prevent funds from being diverted out of the country. By granting users complete ownership of their assets through non-custodial wallets (such as MetaMask and Trust Wallet), DeFi removes these restrictions.

✔ No withdrawal limits – Funds are always accessible.
✔ No freezes – Users hold their private keys.
✔ Global access – No government can block transactions.

Alternative to Collapsing Local Currencies

When national currencies fail, citizens turn to stablecoins (USDT, USDC, DAI) to preserve wealth. Why stablecoins win:

✔ Inflation-proof – Pegged to USD, not local currency.
✔ Borderless — Can be used globally without restrictions.
✔ P2P accessible – No need for a bank.

Cheaper Remittances & Economic Growth

DeFi helps families keep more of their money by reducing costs to less than 1%, compared to the typical 6.2% remittance fees. Below is a table comparing DeFi with traditional systems.

Table 5: Traditional System vs DeFi 

Inflation Hedge with High-Yield Savings

While banks offer near-0% interest (as low as 0.06%), DeFi provides 5%–20% yields, protecting savings from inflation.

Table 6: Traditional Banking System vs DeFi 

Institutional Support for DeFi

To improve MSMEs’ access to capital, the International Finance Corporation (IFC), a division of the World Bank Group, has been investigating decentralized finance (DeFi) potential. Through DeFi lending platforms, the IFC has established a $400 million portfolio aimed at addressing the lack of funding in developing countries.

These programs use blockchain-based smart contracts to reduce traditional banking bottlenecks and enable quicker, more transparent lending [IFC, 2023].

The World Bank has tested applications in digital currencies, identity verification, and remittances through financial inclusion pilots utilizing blockchain technology in 23 countries. 

These tests assess distributed ledger technology’s (DLT) potential to lower transaction costs, increase transparency, and give underbanked groups access to financial services. The use of blockchain technology in the issuance of bonds is a notable initiative that improves settlement efficiency [World Bank, 2023].

Final Thoughts

An experiment explored the formation of DeFi, which has now turned into a viable alternative financial tool, providing a censorship-free substitute for systems that have failed. It eliminates all the restrictive laws and has hyperinflation limited to transactions without borders and direct access to stablecoins. 

Peer-to-peer cryptocurrency trading in failing economies skyrocketed toward billions, regardless of all regulatory resistance. DeFi has many advantages, like savings yields that go up to 20%, remittance rates reduced by 1%, and access to all global financial systems. 

DeFi gives consumers the right to control their assets and the choice to decide if they want to leave broken financial systems. The change is already happening, with adoption picking up in areas where traditional systems failed.