Banking 3.0: The Future of Finance on Solana Blockchain

In a recent episode of "Validated," host Austin sat down with Aleksei Zakharov, CEO and founder of Ottr Finance, to discuss the evolving landscape of digital banking and the potential for blockchain technology to revolutionize the financial industry. Ottr Finance, a mobile web3 wallet built on Solana, aims to provide users with the experience of a modern bank without the traditional banking infrastructure.

What is Banking 3.0?

Banking 3.0 refers to the concept of replicating all the functionalities of a traditional bank using a combination of stablecoins and fast blockchain technology like Solana. This new paradigm aims to provide users with a seamless financial experience while leveraging the benefits of decentralized finance.

Aleksei explains, "By concept of banking 3.0, I mean the idea that you can replicate everything that you expect from a wooden bank, but under the hood, it will use combination over stablecoin and something like fast blockchain like Solana."

The Evolution of Digital Banking

The journey towards Banking 3.0 has been a long one, with various iterations and experiments along the way. Aleksei's experience working on Cash App's integration of Bitcoin provided valuable insights into the potential and limitations of using cryptocurrencies as a foundation for digital banking.

"I think the basic idea of using a digital asset as a kind of universal foundation to scale something like Cash App, I think is very valid," Aleksei notes. However, he also acknowledges the challenges faced when using volatile assets like Bitcoin, which led to a shift in focus towards stablecoins.

The Problem Space Addressed by Banking 3.0

Banking 3.0 aims to solve three fundamental problems in the current financial system:

1. Eliminating bank failures
2. Providing better access to USD and other major currencies
3. Simplifying international payments

Aleksei emphasizes, "What keeping your stablecoins on the blockchain does, it basically prevent this idea of delegating your funds to a third party to manage. So by the nature of how it works, it completely eliminates this idea of a failure of a bank because at this point, you never actually give your money to the bank and as a result, there is no third party to fail."

The Challenges of Traditional Banking

Traditional banking systems face numerous challenges, including the risk of bank failures, limited access to foreign currencies in many countries, and the complexities of international payments. Recent events, such as the failures of Silicon Valley Bank, First Republic, and Signature Bank, have highlighted the vulnerabilities in the current system.

Aleksei shares his personal experience, stating, "Growing up outside of United States, I was exposed to like local currency crisis and just in general felt how hard it is for people to get access to common things like a dollar savings account."

Bridging the Gap Between Crypto and Traditional Finance

One of the key challenges in the adoption of blockchain-based financial systems is the integration with existing traditional financial infrastructure. Ottr Finance aims to address this by providing a seamless experience that feels familiar to users of traditional banking apps while leveraging the benefits of blockchain technology.

"I think what we actually trying to do differently with order, we understand that for us to get the mass adoption, the big focus should be a flawless integration with traditional financial system," Aleksei explains.

Simplifying the User Experience

A major hurdle in the widespread adoption of blockchain-based financial solutions is the complexity of the technology for the average user. Ottr Finance is working to simplify this experience by abstracting away many of the technical details.

Aleksei describes their approach: "When you register with other, you actually don't need to even save your sit phrase somewhere manually. What we do behind the scenes, we encrypt it on your device and make a backup to your personal iCloud or Google drive."

Use Cases for Banking 3.0

The potential use cases for Banking 3.0 extend beyond simple peer-to-peer transactions. Aleksei highlights several scenarios where this technology could provide significant benefits:

1. Protection from bank failures and censorship
2. Banking solutions for industries with limited access to traditional banking (e.g., dispensaries)
3. Universal access to USD savings accounts
4. Simplified international payments and remittances

The Role of Stablecoins in Banking 3.0

Stablecoins play a crucial role in the vision of Banking 3.0. By providing a digital representation of fiat currencies like USD, stablecoins offer the stability needed for everyday transactions while leveraging the benefits of blockchain technology.

Aleksei explains, "I think through my experience at Cash App and this inspiration to deliver universally accessible financial access to people all around the world that will work seamlessly, it really inspired me."

Addressing the Challenges of International Payments

One of the most significant pain points in traditional banking is the complexity and cost of international payments. Banking 3.0 aims to simplify this process by leveraging blockchain technology and stablecoins.

"I think international payments are still very broken. I think every time I send money to someone in another country, it's like sending it to a black box and then you just hope that money will arrive," Aleksei notes.

The Importance of Self-Custody

A key aspect of Banking 3.0 is the concept of self-custody, where users maintain control over their funds without relying on a third-party custodian. This approach offers several benefits, including enhanced security and protection from institutional failures.

Aleksei emphasizes, "I think having this memory really pushed me to this like mission of building a product where people could safely keep their money and be sure that whatever happens with the government or with the company, they will always keep access to their funds."

Integrating with Traditional Financial Systems

While Banking 3.0 aims to revolutionize the financial industry, it's crucial to maintain compatibility with existing systems to ensure widespread adoption. Ottr Finance is working on integrating features like direct deposits and bank transfers to bridge the gap between traditional and blockchain-based finance.

"Today, if you are in the United States, you can get direct deposit with author. You can set up your regular paycheck. We provide you account and routing numbers that you can give to your payroll provider," Aleksei explains.

The Future of Payment Systems

As blockchain technology evolves, new payment systems like Solana Pay are emerging, offering the potential for instant, low-cost transactions. Aleksei envisions a future where these systems become commonplace: "In the future, we have this amazing technologies like Solana Pay, where you can go 10 years from now to a coffee shop and directly pay through Solana blockchain."

Addressing Merchant Adoption

For Banking 3.0 to succeed, it's crucial to incentivize merchant adoption. Aleksei points out that merchants often bear the brunt of transaction fees in traditional systems: "Right now when you pay anywhere in United States, the merchant have to spend at least 3% of all the income on just the existing payment rails."

By offering lower fees and faster settlement times, blockchain-based payment systems could provide a compelling alternative for merchants.

The Global Perspective on Banking 3.0

While the benefits of Banking 3.0 are apparent in developed economies, its impact could be even more significant in emerging markets. Aleksei highlights the potential for improved access to stable currencies and financial services in countries facing economic challenges.

"For a lot of digital nomads and remote worker who earn in USD, it's a much better way to receive this money and what we hope to deliver for them value. It's a better way to store this dollars," Aleksei explains.

Overcoming Technical Barriers

One of the main challenges in implementing Banking 3.0 is simplifying the technical aspects of blockchain technology for the average user. Ottr Finance is working on abstracting away complex concepts like seed phrases and gas fees to create a more user-friendly experience.

Aleksei states, "I think we will be successful if after a year of usage you still don't know [about the underlying blockchain technology]."

The Role of Regulation in Banking 3.0

As blockchain-based financial services evolve, regulatory frameworks will need to adapt. While some aspects of Banking 3.0 may fall outside traditional banking regulations, ensuring consumer protection and compliance with anti-money laundering (AML) and know-your-customer (KYC) requirements will be crucial.

Addressing Security Concerns

Security is a paramount concern in any financial system, and Banking 3.0 is no exception. While blockchain technology offers inherent security benefits, additional measures may be necessary to protect users from potential threats.

Aleksei discusses the possibility of security insurance for blockchain-based wallets: "I think with this security insurance, you pay some premium for the fact that you could be hacked."

The Concept of Unlimited Insurance

One of the unique aspects of Banking 3.0 is the concept of unlimited insurance against bank failures. By keeping funds on-chain, users are protected from the risk of institutional collapse.

Aleksei explains, "When you think about like keeping your stable coins on chain, you actually already have that insurance and it's actually unlimited, as I said, because when you keep your dollars on chain, there is no third party that you have delegated your money to."

Expanding Access to Financial Services

Banking 3.0 has the potential to dramatically expand access to financial services, particularly in underserved markets. By leveraging blockchain technology and stablecoins, people in countries with unstable currencies or limited banking infrastructure could gain access to stable, global financial tools.

The Role of Education in Adoption

As with any new technology, education will play a crucial role in the adoption of Banking 3.0. While Ottr Finance aims to make the user experience as seamless as possible, helping users understand the benefits and potential risks of blockchain-based finance will be essential.

Addressing Volatility Concerns

One of the main criticisms of cryptocurrencies has been their volatility. By focusing on stablecoins, Banking 3.0 aims to provide the benefits of blockchain technology without the price fluctuations associated with speculative crypto assets.

The Potential for Financial Inclusion

Banking 3.0 has the potential to bring financial services to the unbanked and underbanked populations around the world. By lowering barriers to entry and reducing costs, blockchain-based financial systems could dramatically increase financial inclusion.

The Impact on Remittances

International remittances are a crucial source of income for many families in developing countries. Banking 3.0 could significantly reduce the costs and increase the speed of these transfers, potentially having a substantial impact on global economic development.

The Future of Banking Jobs

As Banking 3.0 evolves, it's likely to have an impact on traditional banking jobs. While some roles may become obsolete, new opportunities in blockchain development, customer education, and decentralized finance are likely to emerge.

The Role of Central Bank Digital Currencies (CBDCs)

As governments around the world explore the potential of central bank digital currencies, it's worth considering how these might interact with or compete against private sector Banking 3.0 solutions like Ottr Finance.

Addressing Privacy Concerns

While blockchain technology offers transparency, it also raises questions about financial privacy. Banking 3.0 solutions will need to strike a balance between regulatory compliance and user privacy.

The Potential for Programmable Money

Smart contracts and programmable money are key features of many blockchain platforms. Banking 3.0 could leverage these capabilities to create new financial products and services that aren't possible with traditional banking infrastructure.

The Role of Artificial Intelligence in Banking 3.0

As Banking 3.0 evolves, artificial intelligence could play an increasingly important role in areas like fraud detection, personalized financial advice, and automated trading strategies.

The Environmental Impact of Banking 3.0

While some blockchain networks have faced criticism for their energy consumption, platforms like Solana offer a more environmentally friendly alternative. Banking 3.0 solutions built on efficient blockchain networks could potentially have a lower environmental impact than traditional banking infrastructure.

The Future of Cross-Border Trade

Banking 3.0 could significantly simplify cross-border trade by reducing the friction in international payments and currency conversions. This could have far-reaching implications for global commerce and economic integration.

The Potential for New Financial Products

The programmable nature of blockchain-based finance opens up possibilities for new types of financial products. Banking 3.0 could enable more personalized, flexible financial services tailored to individual user needs.

The Challenge of Interoperability

As different blockchain-based financial solutions emerge, ensuring interoperability between these systems will be crucial. Banking 3.0 solutions will need to work not only with traditional finance but also with other blockchain networks.

The Role of Community in Banking 3.0

Unlike traditional banks, many blockchain-based financial systems have strong community elements. This could lead to new models of governance and user participation in the financial systems they use.

Addressing Scalability Concerns

As Banking 3.0 solutions aim for mass adoption, ensuring the scalability of underlying blockchain networks will be crucial. Platforms like Solana, with their high transaction throughput, are well-positioned to meet this challenge.

The Future of Financial Advisors

As Banking 3.0 solutions become more sophisticated, they may begin to offer automated financial advice. This could change the role of human financial advisors, potentially focusing their work on more complex financial planning tasks.

The Potential for Tokenization

Banking 3.0 could facilitate the tokenization of a wide range of assets, from real estate to intellectual property. This could create new investment opportunities and increase the liquidity of traditionally illiquid assets.

The Impact on Credit Systems

Blockchain-based finance could revolutionize credit systems, potentially creating more transparent and fair lending practices. Decentralized credit scoring and lending protocols could provide access to credit for those currently underserved by traditional banking systems.

The Future of Banking 3.0

As Banking 3.0 continues to evolve, it has the potential to reshape the global financial landscape. By combining the best aspects of traditional banking with the innovations of blockchain technology, solutions like Ottr Finance are paving the way for a more inclusive, efficient, and user-centric financial system.

Aleksei concludes with an optimistic view of the future: "I'm hopeful that when you actually move away from centralized custody where you keep billions of dollars in a single place that could fail, you actually spread the risk across all small individual customers."

As the world of finance continues to evolve, Banking 3.0 stands poised to play a significant role in shaping the future of money and financial services. With its promise of increased accessibility, lower costs, and enhanced security, it's clear that blockchain-based finance is more than just a passing trend – it's the future of banking.

Facts + Figures

• Ottr Finance is a mobile web3 wallet built on Solana, aiming to provide a modern banking experience without a traditional bank.
• Banking 3.0 uses a combination of stablecoins and fast blockchain technology like Solana to replicate traditional banking functions.
• Aleksei Zakharov previously worked on Cash App's integration of Bitcoin.
• Banking 3.0 aims to solve three main problems: eliminating bank failures, providing better access to USD and other major currencies, and simplifying international payments.
• Recent bank failures like Silicon Valley Bank, First Republic, and Signature Bank have highlighted vulnerabilities in the traditional banking system.
• Ottr Finance provides direct deposit capabilities for users in the United States, with account and routing numbers for payroll providers.
• Merchants currently spend at least 3% of their income on existing payment rails in the United States.
• Ottr Finance encrypts users' seed phrases on their devices and backs them up to personal iCloud or Google Drive accounts.
• Banking 3.0 solutions aim to provide unlimited insurance against bank failures by keeping funds on-chain.
• Ottr Finance is working on cost-efficient off-ramps across Europe, select countries in Latin America, and potentially some Asian countries by autumn.
• The company is piloting adoption in dispensaries in the United States, aiming to allow instant deposits for smaller amounts.
• Solana Pay is seen as a potential solution for instant, low-cost transactions in physical locations.
• Banking 3.0 could significantly impact remittances, cross-border trade, and financial inclusion for unbanked populations.
• The concept of self-custody is central to Banking 3.0, allowing users to maintain control over their funds without relying on third-party custodians.
• Stablecoins play a crucial role in Banking 3.0 by providing a stable digital representation of fiat currencies.

Questions Answered

What is Banking 3.0?

Banking 3.0 is a concept that aims to replicate all the functionalities of a traditional bank using a combination of stablecoins and fast blockchain technology like Solana. It provides users with a seamless financial experience while leveraging the benefits of decentralized finance, eliminating the need for traditional banking infrastructure. This new paradigm offers features such as unlimited protection against bank failures, improved access to major currencies, and simplified international payments.

How does Ottr Finance work?

Ottr Finance is a mobile web3 wallet built on the Solana blockchain that provides users with a modern banking experience without the need for a traditional bank. It allows users to store and transact with stablecoins, integrates with traditional banking systems for features like direct deposits, and encrypts users' seed phrases on their devices for enhanced security. Ottr aims to simplify the user experience by abstracting away complex blockchain concepts, making it accessible to users who may not be familiar with cryptocurrency technology.

What problems does Banking 3.0 solve?

Banking 3.0 addresses three main issues in the current financial system. First, it eliminates the risk of bank failures by keeping funds on-chain rather than delegating them to a third party. Second, it provides better access to USD and other major currencies, particularly in countries facing economic challenges or currency crises. Third, it simplifies international payments by leveraging blockchain technology to enable fast, low-cost transfers across borders. Additionally, Banking 3.0 can provide financial services to underbanked populations and reduce friction in cross-border trade.

How does Banking 3.0 handle security and insurance?

Banking 3.0 offers a unique approach to security and insurance. By keeping funds on-chain, it provides unlimited protection against bank failures, as there is no third party that can mismanage or lose the funds. For protection against hacking or other security incidents, Ottr Finance is exploring the concept of security insurance, similar to car insurance, where users would pay a premium for additional protection. The self-custody nature of Banking 3.0 also gives users more control over their funds, reducing the risk of institutional failures affecting their assets.

What are the challenges in adopting Banking 3.0?

The adoption of Banking 3.0 faces several challenges. One major hurdle is simplifying the technical aspects of blockchain technology for the average user, which Ottr Finance is addressing by abstracting away complex concepts. Regulatory compliance is another significant challenge, as blockchain-based financial services may not fit neatly into existing regulatory frameworks. Ensuring interoperability with traditional financial systems and other blockchain networks is also crucial for widespread adoption. Additionally, educating users about the benefits and potential risks of blockchain-based finance will be essential for driving adoption.

How does Banking 3.0 impact international remittances and cross-border trade?

Banking 3.0 has the potential to significantly improve international remittances and cross-border trade. By leveraging blockchain technology and stablecoins, it can reduce the costs and increase the speed of international transfers. This could have a substantial impact on global economic development, particularly for families in developing countries who rely on remittances. For cross-border trade, Banking 3.0 could simplify currency conversions and reduce friction in international payments, potentially leading to increased global commerce and economic integration.

What role do stablecoins play in Banking 3.0?

Stablecoins are a crucial component of Banking 3.0. They provide a digital representation of fiat currencies like USD, offering the stability needed for everyday transactions while leveraging the benefits of blockchain technology. By using stablecoins, Banking 3.0 solutions can offer users the familiar experience of dealing with traditional currencies while providing the advantages of blockchain-based finance, such as fast transfers and improved accessibility. Stablecoins also address the volatility concerns associated with many cryptocurrencies, making Banking 3.0 more suitable for everyday financial activities.

How does Banking 3.0 compare to traditional banking in terms of financial inclusion?

Banking 3.0 has the potential to dramatically improve financial inclusion compared to traditional banking. By leveraging blockchain technology and reducing the need for physical infrastructure, Banking 3.0 solutions can reach underbanked and unbanked populations more easily. These solutions often have lower barriers to entry and reduced costs, making financial services more accessible to those who may be excluded from traditional banking systems. Additionally, the ability to access stable currencies and global financial tools through Banking 3.0 can provide economic opportunities for people in countries with unstable local currencies or limited banking options.