The Year of the Neobank
First we infiltrate, then we conquer.
Introduction
Crypto and banking have had a tumultuous history, especially in the early days. Banks would cancel transactions, even debank users entirely. In fact, most early users of crypto saw it as a way to “beat the banks” and overhaul an archaic system.
As part of this, we saw several crypto-projects that attempted to facilitate payments through cards or offer bank-like services, many of which ultimately shut down those services, faded away, or voluntarily withdrew their regulatory applications. A few were under heavy regulatory pressure, and some were forced to discontinue due to regulation and/or profitability issues.
Crypto has faced constant adversity, pounding away at the door of indifference, hoping that one day, we would finally crack the government’s hard shell and show them what crypto can do.
That time has finally come.
Trump’s government has welcomed crypto with open arms and fully embraced both the culture and the applications of the technology. The creation of the GENIUS Act, along with the Strategic Bitcoin Reserve, has helped cement Trump’s goal of making America the world leader in blockchain technology. This shift in policy has opened the floodgates for ideas and directions that had normally been stifled, like crypto cards, neobanks, and the like.
A neobank is defined as a 100% digital bank that delivers banking services through a mobile app or website. Neobanks typically focus on:
user-friendly design
lower fees
innovative features
In today’s day and age, some examples of traditional neobanks include Chime, Revolut, and Monzo. However, now that crypto and DeFi have matured, we’re seeing the emergence of neobanks at the intersection between crypto and TradFi.
In this piece, we’ll examine two different projects that are effectively conveying the crypto-native neobank narrative: EtherFi and Plasma.
EtherFi
EtherFi was the first of these two projects to start the pivot towards being a neobank. It started out as a liquid restaking platform on Ethereum, centring around its eETH offering, called Stake. This was obviously a huge success, as it helped unlock users’ restaked ETH and provided them with an avenue to utilise the capital in DeFi for additional opportunities and strategies.
However, this is where things got interesting for them: they created Liquid, a yield-optimised vault product that allowed users to access strategy vaults to automate their earnings on ETH, BTC, and USD. The combination of both Stake and Liquid is central to their third product pillar: Cash.
Cash is the culmination of all that came before, and it is the reason why EtherFi is included in this conversation about neobanks.
With Cash, users can deposit a list of approved assets into a vault and use the EtherFi card to spend their balance and pay for things like bills, groceries, and more.
Now there are two ways of going about it:
Direct Pay mode: Users can pay directly with USDC, USDT, or liquidUSD (which currently earns 9.8% APY, meaning any unused funds remaining in the vault are earning yield).
Borrow Mode: Users can borrow against your crypto collateral to make any associated payments. Collateral includes various forms of ETH, BTC, ETHFI, all Liquid Vaults, and USD alternatives.
All forms of collateral have varying LTVs that determine how much your spending limit is relative to your collateral amount.
For example, if you have $10,000 of BTC and have a 50% LTV, you’ll have a spending limit of $5,000.
Borrow rates are also capped at 4% APR.
This approach enables users to maintain their crypto holdings if they wish, borrow against their precious coins, or earn yield on their dollars with the LiquidUSD vault and pay directly from a “bank balance” that earns interest while it sits.
What sets EtherFi apart from other crypto cards is the ability to utilise your BTC/ETH holdings as collateral to “fund” your payments. It’s one thing to use a stablecoin balance to fund IRL payments; it’s another to borrow against your crypto and pay your bills without selling your beloved cryptographic assets. Users will especially love that their unused assets are still sitting in EtherFi vaults, earning yield to help offset the costs of borrowing.
EtherFi users also get cashback from their purchases, ranging from 2-3%, paid in Scroll’s SCR token. EtherFi region/country availability can be a bit challenging to navigate, as it is unavailable in certain jurisdictions, countries, and states within the US.
As far as regulatory things are concerned, EtherFi is very clear that they do not have a banking license and also require KYC for users of their Cash card.
Plasma
Plasma was the hot topic of CT recently, and for good reason: they launched the first blockchain purpose-built for stablecoins amidst all the fervour and hunger for exposure to stablecoins.
While support is available for all stablecoins, Plasma is designed with USDT in mind, offering zero-fee transfers. Where this shines is in third-world countries or countries with inflated currencies, as many of them still save in dollars.
Not to mention, many people in these countries still use USDT for cross-border payments. Being able to transfer these funds without fees will be a significant benefit to these users.
With that out of the way, let’s discuss the neobank angle for Plasma. If we remember the definition of a neobank, it’s described as a digital bank that offers banking services through a website or mobile app.
This is where Plasma One comes into play, enabling users to earn, save, and spend their hard-earned dollars in one application. They’ve set a high bar with the yield users can earn on their balance, a staggering 10% or more.
Plasma One users receive up to 4% cashback on all purchases and can use it in over 150 countries.
Plasma is also working on privacy options for users, as well, looking to implement:
Stealth Address Transfers
Encrypted Memos
Private<>Public transfers
Selective Disclosures
The team mentions that Plasma was built with regulation-readiness in mind, but to the best of this writer’s knowledge, they don’t hold any specific financial services licenses. It is also possible that these types of initiatives are in development or being actively pursued.
Conclusion
If you’ve been in crypto for a while, you likely have (or at least had) the belief that crypto can replace (or at least complement) traditional financial rails and put to bed the broken system that currently exists. If our goal is still to bring crypto to the mainstream, then this is likely the path we need to take. DeFi, stablecoins, neobanks, and others have all been built to address the shortcomings in today’s world, recognising that we can do it better.
That’s why it’s a beautiful thing to see all the innovation that has emerged from our space, including the rise of neobanks and neobank-like products. Along with stablecoins, this could be one of the biggest benefits that crypto can offer the world: a way to transact and send money in a manner that has never been available to everyone.
Both EtherFi and Plasma offer significant benefits with their products, each with its own advantages and disadvantages, but together they are championing the success of crypto. EtherFi showcases how DeFi and yield-bearing composability can be utilised in everyday payments, while Plasma transforms your dollars into a turbocharged, high-yield savings account.
This will be an ever-growing sector in the space, as more projects start to feel out what is possible under less stringent regulation. And there are likely plenty of projects that I’ve missed and many more that will announce neobank-like services.
But one thing is clear: crypto just does it better.
Because if every bank were able to utilise DeFi rails and protocols to add 5-10% APYs to users’ bank balances, the world would be a better place.
But they don’t.
That allows teams like EtherFi/Plasma to enter the arena and give people a better alternative. These teams are able to build and ship quickly, which can give them an edge over traditional banks (and even web2 neobanks) that move slowly.
Crypto was advertised as the next Occupy Wall Street, a means to eliminate banks.
Maybe this is how we do it.
First we infiltrate, then we conquer.
Schizo out.
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