Case Study 2: The Unbanked and DeFi — Does Decentralized Finance Actually Help Underserved Populations?

Case Study 2: The Unbanked and DeFi — Does Decentralized Finance Actually Help Underserved Populations?

The Promise

"Bank the unbanked" is one of DeFi's most frequently repeated slogans. The argument is compelling on its surface: 1.4 billion adults worldwide lack access to a bank account; hundreds of millions more are "underbanked," with access to basic accounts but not to credit, insurance, or investment products. Traditional financial institutions have failed these populations because serving them is unprofitable, because regulatory requirements (Know Your Customer, Anti-Money Laundering) create barriers that the poorest cannot clear, and because geographic and infrastructural limitations make branch banking impractical in rural areas.

DeFi, the argument goes, removes all of these barriers. A smartphone and an internet connection are all you need. There is no minimum balance. There is no credit check. There is no identification requirement. The protocol treats a farmer in rural Nigeria identically to a hedge fund manager in New York.

This case study examines whether that promise matches reality — with data, not ideology.

The Data: Who Actually Uses DeFi?

Geographic Distribution

Chainalysis's annual Geography of Cryptocurrency report provides the most comprehensive data on DeFi adoption by region. The findings are sobering for the "bank the unbanked" narrative:

By raw DeFi transaction volume (2023-2024): - North America: ~33% of global DeFi volume - Western Europe: ~22% - Central and East Asia: ~15% - Eastern Europe: ~10% - Latin America: ~7% - Sub-Saharan Africa: ~3% - South Asia: ~5% - Middle East and North Africa: ~4% - Oceania: ~1%

The regions with the most unbanked people — Sub-Saharan Africa and South Asia — account for roughly 8% of global DeFi activity combined. The regions that are already best served by traditional finance — North America and Western Europe — account for over 55%.

Transaction Size

DeFi transaction sizes tell an even clearer story. On Ethereum mainnet, the median DeFi transaction in 2024 was approximately $1,500-$3,000. This reflects both the gas cost barrier (small transactions are uneconomical) and the user profile (predominantly affluent crypto-native traders).

On Layer 2 networks and alternative chains with lower fees, median transaction sizes are lower ($50-$500 range), suggesting some success in attracting smaller users. But even these figures are well above the transaction sizes typical of unbanked populations, where daily transactions of $1-$10 are common.

User Demographics

Direct demographic data on DeFi users is limited (pseudonymous wallets do not self-report demographics), but proxy measures are available:

A 2023 survey by ConsenSys found that 83% of DeFi users had used traditional financial products before using DeFi. Only 6% reported being "unbanked" prior to DeFi usage.
Analysis by the Bank for International Settlements (BIS) found that DeFi adoption correlated strongly with existing cryptocurrency ownership, which itself correlates with higher income, younger age, male gender, and technical education.
A 2024 study published in the Journal of Financial Economics found no statistically significant correlation between a country's unbanked rate and its DeFi adoption rate, after controlling for internet penetration and smartphone ownership.

The honest conclusion: as of 2025, DeFi is primarily used by people who already have access to traditional financial services and choose DeFi for its specific advantages (yield, privacy, speculation, ideology). It is not primarily serving the unbanked.

Where DeFi Is Actually Helping

Despite the aggregate data, there are specific contexts where DeFi is providing genuine value to underserved populations. These success stories are real, but they are narrower and more qualified than the "bank the unbanked" rhetoric suggests.

Case A: Stablecoin Remittances in Sub-Saharan Africa

The World Bank estimates that remittances to Sub-Saharan Africa totaled approximately $54 billion in 2023. Traditional remittance channels (Western Union, MoneyGram, bank wire) charge average fees of 7.4% for transfers to Africa — the highest of any region. For a $200 transfer, that is $14.80 in fees.

Stablecoin-based remittances are growing rapidly. Services like Chipper Cash, Valora (built on Celo), and various Tron-based USDT transfer services allow diaspora populations to send money home at fees of 1-3%. The savings are genuine and significant for populations where remittances constitute 5-20% of household income.

However: These services are not "DeFi" in the composable, permissionless sense described in this chapter. They are centralized mobile applications that use stablecoin rails for settlement. The user never interacts with a DEX, a lending protocol, or a smart contract. The blockchain is infrastructure, not interface. Credit for these improvements belongs more to stablecoins (Chapter 24) than to DeFi's composable protocol ecosystem.

Case B: Dollar Access in Argentina

Argentina's annual inflation rate exceeded 200% in 2024. Access to US dollars is restricted by government capital controls. The official exchange rate is significantly worse than the parallel ("blue dollar") market rate. For Argentines seeking to protect their savings from inflation, stablecoins — particularly USDC and DAI — offer dollar exposure without navigating the black market or paying premium exchange rates.

Chainalysis reports that Argentina has one of the highest rates of stablecoin adoption relative to GDP in the world. Many Argentines use DeFi lending protocols (primarily Aave on Polygon or other low-fee chains) to earn yield on their stablecoin holdings — yield that, while modest in dollar terms (3-6% APY), exceeds what is available in Argentina's formal banking system for dollar-denominated savings.

However: The Argentine DeFi users who benefit from this are typically middle-class, tech-literate, and urban. The most economically vulnerable Argentines — rural workers, informal sector employees, the elderly — lack the technical infrastructure and knowledge to access DeFi. The benefit is real, but it accrues to the already relatively privileged.

Case C: Microfinance Experiments

Several projects have attempted to use DeFi for microfinance — small loans to entrepreneurs in developing countries. Notable examples include:

Goldfinch Protocol: A credit protocol that enables uncollateralized lending to businesses in developing countries. Goldfinch uses "trust through consensus" — off-chain auditors verify borrowers, and on-chain capital providers fund loans. Goldfinch has originated over $100 million in loans across multiple countries. However, Goldfinch is more accurately described as "blockchain-based fintech" than "DeFi" — the credit assessment is centralized and off-chain, and the protocol relies on trusted intermediaries (auditors, borrower pools) that are antithetical to DeFi's permissionless thesis.

Centrifuge: A protocol that tokenizes real-world assets (invoices, trade receivables, real estate) and brings them on-chain as collateral for DeFi lending. Centrifuge enables businesses to borrow against assets that traditional banks would not finance. While promising, Centrifuge's adoption remains small, and the real-world asset (RWA) lending process still requires significant off-chain infrastructure.

Jia.xyz: A micro-lending platform in Kenya that uses blockchain rails for disbursement and repayment. Jia has issued thousands of small loans (average size: $50-200) to market vendors, boda-boda (motorcycle taxi) drivers, and small farmers. The default rate has been lower than traditional microfinance institutions, partly because blockchain-based credit scoring using mobile money transaction history provides better risk assessment.

These projects are genuine and valuable. But they share a common pattern: the closer a project gets to actually serving the unbanked, the more it relies on centralized, off-chain components (credit assessment, identity verification, local partnerships) that DeFi's purists would not consider "decentralized."

Case D: Humanitarian Aid Distribution

In contexts where traditional banking infrastructure has collapsed — war zones, countries under sanctions, areas following natural disasters — cryptocurrency and DeFi protocols have provided alternative rails for distributing aid. The UN World Food Programme's Building Blocks project has used blockchain-based voucher systems in Jordan's refugee camps. Various NGOs have used stablecoin transfers to deliver aid to Ukraine, Turkey (after the 2023 earthquake), and other crisis zones.

Again, these use cases leverage blockchain as infrastructure rather than DeFi as a composable financial system. But they demonstrate that the underlying technology can reach populations that traditional finance cannot.

The Structural Barriers

If DeFi is genuinely going to serve the unbanked, it must overcome barriers that are more fundamental than protocol design:

Barrier 1: Internet Access

The 1.4 billion unbanked adults overlap significantly with the 2.6 billion people who lack internet access. DeFi requires not just internet connectivity but reliable, consistent connectivity — not the intermittent, expensive mobile data that characterizes internet access in many developing countries. In Sub-Saharan Africa, the average cost of 1 GB of mobile data is approximately 5% of average monthly income. A single failed DeFi transaction that costs gas but does not execute still costs money.

Barrier 2: On-Ramps

To use DeFi, you need cryptocurrency. To get cryptocurrency, you need either a centralized exchange account (which requires identification, a bank account, and verification — the same barriers that exclude people from traditional banking) or peer-to-peer purchase (which is available in many countries but requires trust, cash, and knowledge of the process). The on-ramp problem is a catch-22: DeFi promises access without traditional financial infrastructure, but accessing DeFi requires traditional financial infrastructure.

Mobile money solutions (like M-Pesa in Kenya) are beginning to bridge this gap, enabling direct conversion between mobile money balances and cryptocurrency. But these bridges are still limited in geographic coverage and often involve fees that erode the savings DeFi is supposed to provide.

Barrier 3: Technical Literacy

Managing private keys, understanding token approvals, evaluating smart contract risk, and navigating gas fees require technical knowledge that most people — including most people in developed countries — do not have. For a population where baseline financial literacy may be low and where a single mistake (sending tokens to a wrong address, approving a malicious contract) results in permanent, irrecoverable loss, the risk is not theoretical.

Smart contract wallets, account abstraction (ERC-4337), and improved mobile interfaces are making DeFi more accessible. But the gap between "usable by a crypto-native developer" and "usable by a market vendor in Lagos who has never used a computer" remains enormous.

Barrier 4: Regulatory Hostility

Several countries with large unbanked populations have banned or severely restricted cryptocurrency use. Nigeria (home to Africa's largest unbanked population) banned banks from processing cryptocurrency transactions in 2021 (partially reversed in 2023). India has imposed a 30% tax on cryptocurrency gains. China has banned cryptocurrency trading and mining entirely. These regulatory environments make DeFi adoption illegal, risky, or uneconomical for the very populations it claims to serve.

Barrier 5: Volatility

For the unbanked, financial services means safe savings, affordable credit, and reliable payments — not yield farming or speculative trading. The volatility of cryptocurrency (even with stablecoins, which carry their own risks — see Chapter 24) makes it a poor store of value for people living on $2 a day. A 10% stablecoin depeg that is an annoyance for a wealthy crypto trader is a catastrophe for a subsistence farmer whose entire savings is in that stablecoin.

An Honest Assessment

The evidence supports the following conclusions:

DeFi's underlying technology — blockchain-based settlement, stablecoins, programmable contracts — does provide infrastructure that can serve underserved populations. The stablecoin remittance use case alone saves billions of dollars in fees annually.
DeFi as a composable, permissionless financial system is not currently serving the unbanked in meaningful numbers. The user base is overwhelmingly crypto-native, affluent, and located in developed countries.
The projects that are most successfully reaching underserved populations tend to use blockchain as infrastructure while relying on centralized components for the "last mile" — credit assessment, identity, on-ramps, and user interfaces. Pure permissionless DeFi does not solve the problems that actually prevent the unbanked from accessing financial services.
The barriers to DeFi adoption among the unbanked are primarily non-technical: internet access, on-ramps, regulatory hostility, and volatility are all more significant obstacles than protocol design. Building a better DEX or lending protocol does not solve these problems.
The "bank the unbanked" narrative serves the DeFi industry by providing a moral justification for regulatory leniency and investment. This does not mean the narrative is entirely wrong — some DeFi infrastructure genuinely helps. But the gap between the narrative and the reality should make us skeptical of claims that DeFi's primary social function is serving the world's poorest.

A more honest framing: DeFi has created permissionless financial infrastructure that could serve underserved populations if combined with solutions for the on-ramp problem, the UX problem, the regulatory problem, and the connectivity problem. The infrastructure is necessary but not sufficient. The hardest problems are not in the smart contracts — they are in the last mile.

Discussion Questions

Is the "bank the unbanked" narrative harmful if it is overstated? Does it matter if DeFi's marketing claims exceed its current reality, as long as the technology is moving in the right direction? Or does overpromising create real harms (e.g., attracting vulnerable users to risky products, or providing cover for regulatory avoidance)?
Consider the pattern observed across Cases A-D: the projects that most successfully serve underserved populations tend to rely on centralized components. Does this mean that the "decentralized" part of DeFi is irrelevant for financial inclusion? Or is decentralized infrastructure still valuable even when the user-facing layer is centralized?
Compare DeFi's "financial inclusion" narrative to mobile banking's track record. M-Pesa (launched in Kenya in 2007) has brought basic financial services to tens of millions of previously unbanked people. M-Pesa is centralized, permissioned, and operated by a telecom company. Does M-Pesa's success suggest that decentralization is not necessary for financial inclusion? What would DeFi need to offer that M-Pesa does not?
If you were advising a development organization (World Bank, USAID, DFID) on whether to invest in DeFi infrastructure for financial inclusion, what would you recommend? Would your recommendation differ by region, use case, or time horizon?
The case study notes that regulatory hostility (Nigeria, India, China) is a significant barrier to DeFi adoption among the unbanked. But regulators argue that cryptocurrency restrictions protect vulnerable consumers from fraud and volatility. Who is right? Is there a regulatory framework that protects consumers while enabling the beneficial uses of DeFi?