Image source:\u00a0ChatGPT<\/p>\n
The term financial sovereignty is used a lot in crypto and is often adopted as a slogan without being thoroughly explained. It\u2019s worthwhile unpacking because the concept behind it is what makes a decentralized exchange platform fundamentally different from any financial service that existed prior to the advent of public blockchains, and why that difference is important and can be easily overlooked until it is actually necessary.<\/p>\n
Financial sovereignty is the ability to own, control, and move assets of your own without requiring anyone else\u2019s approval. Not dependent on the approval of a bank. Not in the discretion of the management of any exchange. Not government authorization that is in addition to the law. No intermediaries, no choices, and a public ledger that applies the rules impartially.<\/p>\n
That\u2019s a significantly different structure to the manner in which financial access has been obtained throughout most of the history of modern life, and it\u2019s one of the least talked about implications of having financial access, not just discussing it.<\/p>\n
In most cases, people engage in permission-based finance on a regular basis and don\u2019t notice the permission layer. Your bank account may be frozen. A payment processor has the right to refuse a transaction that is otherwise perfectly legal if they believe it\u2019s suspicious. A brokerage can also limit trading in an asset when it becomes very volatile, as it does during GameStop\u2019s trading restrictions in 2021, when millions of retail traders learned that the ability to trade a particular stock would depend on those unknown to them who were acting as intermediaries. During a liquidity crisis, a centralized exchange can halt withdrawals until the situation resolves, allowing users to lose their funds that they thought were in their accounts.<\/p>\n
All these examples do not involve the fraud or malice. They are just the normal function of systems that have a mediator between you and your assets, who can intervene in the event the mediator believes it is needed. Sometimes that intervention helps to safeguard users. In some cases it safeguards the intermediary. The idea is, it\u2019s not your decision to\u00a0make.<\/p>\n
It\u2019s the water in which most of the financial activity floats, and you don\u2019t think about it until a certain time occurs, when you can\u2019t see it anymore: frozen account during a dispute, blocked transaction during a personal emergency, withdrawal restriction during a market panic. Financial sovereignty is lacking because of the absence of this permission layer, and not because it\u2019s less regulated, but because the architecture takes away the middleman who has the power to intervene.<\/p>\n
If you trade on a decentralized exchange platform with a self-custody wallet, then the assets you hold are under your control only. The balance of your company\u2019s database entry does not represent you. There is no internal ledger that governs what you can use what for at the institution. Only the blockchain and the cryptography used to secure it have authority over your transactibility.<\/p>\n
This gives a clear and tangible series of skills that permission finance cannot provide in the same manner. Trading can take place at any time and any day with no need to wait for the business to be open or the transaction to go through an internal review process. You can transfer assets from one country to another without having to seek approval from the intermediary, who may refuse if your country or the other country has an unapproved regulatory regime. It can be understood that assets can still be held which no one institution can take possession of by a unilateral decision because noone can technically do\u00a0it.<\/p>\n
All of this is not to say that decentralized finance is not lawful. No one is exempt of tax requirements, securities law or anti-fraud laws regardless of the technology used in a transaction when it comes to a decentralized crypto exchange. Who can be the gatekeeper on a day-to-day basis is what changes. The law remains in effect. The intermediary that might otherwise be able to impose restrictions that are not mandated by the law is not the\u00a0same.<\/p>\n
As the cross-chain infrastructure matures, the financial sovereignty principle becomes more complete, rather than being less. A trader who has only partial sovereignty because cross-chain tools are not reliable enough to access assets on another blockchain other than where they were deposited, has only partial sovereignty as they are not truly sovereign, but have to play the \u201crules of the other chain,\u201d and therefore the \u201cpermission layer\u201d they escaped\u00a0from.<\/p>\n
A cross chain decentralized exchange is an extension of sovereignty beyond its limitations. Just like in a single-chain trade, the same principles of self-custody also apply to the trade in a multi-chain scenario. You are not asking a company\u2019s permission to move your assets from one ecosystem to another. You are creating a bridge between the blockchains that is based on objective, verifiable conditions, not on human subjectivity.<\/p>\n
This is important because the merits of having sovereignty over the assets depend on how easily you can access them and how free you can be with them. Assets that you can\u2019t move quickly from where they\u2019re stored to where they\u2019re needed are sovereign, but not so. A cross chain crypto exchange that reliably handles this movement is implementing the sovereignty principle and not an added convenience.<\/p>\n
Financial sovereignty comes with a cost. The institutions that have authority over traditional finance also take on duties that are shifted to the individual with self custody. When a bank freezes a transaction that it is certain is not being used for an authorized purpose, it is taking a risk similar to the one it would assume if it were to do it if it were sure that it was being used for an authorized purpose. That same ability that leads to unwanted interference leads to fraud protection, dispute resolution, and recovery in the event of a miscarriage by accident, not by\u00a0design.<\/p>\n
If you\u2019re responsible for your own account keys and trading on a decentralized exchange, you do those things yourself. No customer service telephone number to call if you wire money to the wrong address. No fraud department to correct a forced or misguided process. No institution exists between you and a mistake, and no institution exists to catch that mistake, when it becomes permanent.<\/p>\n
This trade-off is not a bug in the \u201cfinancial sovereignty\u201d idea. It\u2019s the idea that is functioning exactly according to its design. Sovereignty is the choice of what to do and what not to do, both good and ill, that is truly yours. The honest question to ask is not whether you prefer to be sovereign or to have permission for finance, but whether you\u2019re ready to take on the responsibility for this freedom you\u2019re\u00a0gaining.<\/p>\n
Financial sovereignty is straightforward to view as either a political or philosophical stance, one you either support with conviction, or one you reject as meaningless jargon. The more helpful framing is useful: sovereignty is most important when permission-based systems are not working for the people that they are meant to\u00a0serve.<\/p>\n
Those who had to keep their savings in their country of residence, where the capital controls blocked the flow of savings. Individuals whose bank account can be frozen due to a dispute they did not trigger. In areas where the domestic currency is volatile and more stable assets are not available due to capital flow restrictions put in place for other reasons. Those that have experienced a centralized exchange cut off their withdrawals at the moment they need the money. In all of these cases, the concept of financial sovereignty is not a concept, it is a reality. It\u2019s a matter of whether you have your resources or\u00a0not.<\/p>\n
DeFi is not simply a place that trades on fees and liquidity; it is a decentralized exchange platform that empowers regular users to truly exercise self-custody, secure execution, and, increasingly, the power to transfer their assets effortlessly throughout different blockchains. It is infrastructure where a certain sort of freedom is made possible, instead of merely possible, and not just in theory. It\u2019s important to understand that aside from any other reason for using it, this is the\u00a0case.<\/p>\n
Financial Sovereignty Sounds Abstract Until You Actually Need It<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":" Image source:\u00a0ChatGPT The term financial sovereignty is used a lot in crypto and is often adopted as a slogan without being thoroughly explained. It\u2019s worthwhile unpacking because the concept behind it is what makes a decentralized exchange platform fundamentally different from any financial service that existed prior to the advent of public blockchains, and why […]<\/p>\n","protected":false},"author":0,"featured_media":183027,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-183026","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/183026"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=183026"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/183026\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/media\/183027"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=183026"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=183026"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=183026"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}