Anyone can get debanked. DeFi is a critical safety net.
Editor’s note: This op-ed is part of a bigger package of crypto policy views. Find the rest here: “Making the U.S. the crypto capital: What it would take.”
Three years ago, my husband walked into our home office with a stricken look on his face. He’d just spoken to our banker from the local branch down the street, where we’d kept our money for more than a decade. The bank had frozen all of our accounts indefinitely. We had no idea why. Our banker was not allowed to tell us anything else. Not even if or how or when we might get our money back.
My husband and I are rule followers, so this should have been impossible. And because we grew up in families on tight budgets, we’ve long kept a lot of our money in cash in a bank to be prepared for whatever surprises might arise. But our bank’s decision to freeze our accounts meant we had no access to any of our money at all. It was more than a little frightening.
At the time, I was working for a crypto company. Was I part of the sweep many banks appear to have done to close out crypto company employees’ bank accounts? I don’t know. Honestly, I don’t think I was important enough. But did working for a crypto company play a role? Probably. Most likely I was caught in one of the hundreds of algorithms that all banks have to design and run to comply with laws that require banks to help the government identify potential bad guys. Receiving regular deposits from a crypto company could easily have been one element in many of those algorithms.
That’s exactly why these algorithms are a mess. They miss plenty of bad guys. They catch plenty of good guys. And there are virtually no remedies for the harms done to those good guys who are unlucky enough to get caught up by them. Sometimes your account is closed and you can take your money and leave. Other times, as in my case, your account is frozen and the bank goes silent. Sometimes the law does not allow the bank to tell you anything at all. Not even to try to figure out if their algorithm made a mistake.
This happens all the time to Americans, not just those of us in crypto, and often with much scarier or worse outcomes. Everyday Americans can wind up unable to pay their rent, go to the doctor, or buy food after being cut off from the traditional financial system without warning or reason.
Decentralized finance — DeFi — is a necessary check on this broken system. In the first 24 hours of panic over what to do after losing access to my bank accounts, I realized I did have some assets somewhere else, an inadvertent emergency fund stored in a much safer place than cash under my mattress: I had bitcoin in a self-custody crypto wallet.
Self-custody wallets are at the heart of DeFi. It’s not a bank account, or really an account at all. It’s a non-custodial technology service — software that lets you safely and securely store and spend your own money. It’s the digital version of the wallet in your back pocket. You are the one holding and controlling your own money at all times, not a bank or anyone else.
My self-custody wallet meant that I still had a safe way to access my own assets if I needed them. Access that could not be shut off by a bank’s misapplication of an algorithm. Access that could not be shut off by a government determination that a legal industry was not worthy of traditional banking services. It was a lifeline.
This is not a partisan issue. All Americans need access to safe financial services in order to live our lives. We shouldn’t be at risk of those services being turned off when the government or banks themselves deem whole parts of society unworthy — not unlawful, but unworthy. And now we have the technology to give every American this access, as long as we enable this technology to be built safely and responsibly here.
America’s answer has never before been to shut down promising new tech entirely. We shouldn’t start now. We don’t shut down search engines because you can find bad information through them. We don’t shut down email services because bad guys commit fraud through them. The answer is to tailor regulations to actual risk, rather than force new technology into boxes so ill-fitting they destroy the potential benefits altogether. The answer is to go after the actual bad guys, not the good faith American builders eager to play by the rules.
Otherwise we are punishing every single one of us who deserves access to a safe way to store and use their assets that can’t be arbitrarily taken from them, as well as the builders who choose to create jobs and new industries here, rather than overseas.
As for the end of my story, it took almost two months to get (most of) our money back from my old bank. After countless phone calls and complaints and emails and pleas. The bank wouldn’t let us pick up a check, and they wouldn’t even send the money by certified mail. They sent it by regular mail — where all kinds of financial theft happens, but of course no one wants to shut down the entire postal system because of that. So I sat on our front porch stalking our mailperson’s route until the check arrived, now safely deposited elsewhere.
I am deeply sympathetic to the fear that new technology can create new risks. I welcome any conversation with anyone who thinks we can’t protect Americans while also building responsible DeFi that makes American lives better. And I’m sharing this very personal story publicly to shine a light on this problem in our traditional financial system that is long overdue for fixing, but also as a reminder of the individual people who can be harmed if we act out of fear and prejudice alone against the unknown. Crypto technology can be a force for good for all of us, if we let it.
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Katherine Minarik is the Chief Legal Officer at Uniswap Labs. Previously she served as Vice President and Deputy General Counsel at Coinbase, where she oversaw global litigation.
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