The traditional banking system has been under significant pressure recently, as several major institutions faced liquidity crises or outright liquidations. In that environment, many are looking for an alternative, including crypto. After the collapse of a major Swiss bank, one controversial crypto entrepreneur placed a bid that raised eyebrows.
On Sunday, Tron founder Justin Sun offered to buy the recently bankrupt Credit Suisse for $1.5 billion—his supposed motivation – creating a more decentralized financial system.
“By integrating Credit Suisse into a crypto-friendly financial institution, we can pave the way for a more innovative and decentralized financial system,” Sun tweeted.
Few in the crypto space saw Sun’s proposal as serious, owing to Sun’s questionable reputation. In the past, Sun was keen to give grandiose promises to attract attention. This ranged from pledging $5 billion in struggling crypto firms to solving the FTX crisis.
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In any case, the peculiar offer highlighted an interesting possibility – a Web3 bank. But is a decentralized, user-ran bank even possible?
DAO, dApps, and DeFi: What is Web3?
Coined by Ethereum co-founder Gavin Wood, Web3 refers to a potential future version of the internet. Currently, tech companies like Apple, Google, Meta, Microsoft, and Amazon dominate the internet. Wood and others call this state of the internet Web 2.0, where corporations have undue power over users.
Critics of the current banking system draw parallels between Web 2.0 and the banking system. Its rules are stiff and opaque, putting users at the mercy of giant institutions.
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In the future, Web3 proponents believe that the internet will become much more decentralized, thanks to crypto and blockchain. These same technologies could transform virtually every other industry, including banking.
What Would A Web3 Bank Look Like?
To understand how Web3 could transform banks, it is crucial to look at key technologies that enable that transformation.
Blockchain networks like Ethereum enable developers to create decentralized applications (dApps) that don’t have a single owner. Instead, these dApps come alive through their communities of users, creators, or developers.
These communities can also form a decentralized autonomous organization (DAO) to make critical decisions. They can run it by vote and set up any rules they want.
This way, users could set up a decentralized social media site, marketplace, or bank. Essentially, a Web3 bank would have any rules its users would want it to have. It would grow with its community and shrink with its community. The community would also share any profits (and losses) of the bank.
Instead of relying on clerks’ discretion and opaque rules, Web3 would rely on smart contracts. This would also make a Web3 bank completely transparent. Smart contracts are just pieces of blockchain code, enabling anyone to read them.
Can a Web3 Bank Ever Become a Reality?
While the idea of a Web3 bank is intriguing, there are still major hurdles. Financial regulation currently deals with centralized, opaque entities. This makes it inadequate for Web3 entities like DAOs.
In the future, regulations will likely have to change to accommodate Web3. Still, if Web3 becomes sufficiently decentralized, it will be much more difficult for regulators to crack down on it. At that point, regulators may have to be content to take a more lenient approach.
Another issue comes from a part of the Web3 community itself. Prominent figures in the crypto space criticized projects that claim to be Web3 that are actually centralized.
For instance, Block founder Jack Dorsey said that venture capitalists like Andreessen Horowitz are the real owners of Web3. His remarks sparked a huge fight within the community. On the other hand, Ethereum founder Vitalik Buterin criticized the practice of issuing governance tokens, saying it favors special interests.
Whether or not Web3 banks eventually become a reality, Credit Suisse won’t be one. The Swiss central bank did not accept Sun’s offer, opting to make Credit Suisse a part of UBS.
