How MELD is Building a Better Banking Stack

MELD’s goal is to bring bleeding-edge financial services to the masses. To do this, we’re leveraging the best aspects of DeFi to bridge the worlds of crypto and fiat.

Our vision encompasses not only a collection of decentralized finance products, but a complete ecosystem. At the core of this ecosystem are three products that we’re launching this year: the MELDapp, our MELD token, and the MELD protocol. We call this ecosystem a “banking stack”. Basically, it replaces your bank, and gives you a much better deal on the same services that your bank provides…and then some.

Some of the things we’re working on include: crypto-to-fiat loans with just a few clicks, crypto-to-crypto loans, “self-paying loans”, staking, and a protocol that’s run by the people, for the people.

A key aspect of MELD is that everything we’re building is decentralized, trustless, and non-custodial. But what does that mean, exactly, and how does that fit into our vision for a more equitable banking stack?

Three Magic Words

Present day, there’s a lot of excitement in the DeFi space. One way to think about DeFi is that it’s a new financial system that eliminates subjectivity, bias, and inefficiency by creating a playing field where money is “programmable”.

In terms of “programmable money”, first came Bitcoin. Next came Ethereum, and a host of other altcoins(including Cardano, on which MELD is built). Over the past two years, the world of DeFi has emerged, and it has only just scratched the surface of what is possible with decentralized, non-custodial, trustless financial technologies.

Let’s nail these three terms down, starting with the simplest: decentralization.

It Starts With Decentralization

What does it mean to be decentralized? Bitcoin is a decentralized technology–what makes it so? Typically, most web applications run from a centralized server, or a small collection of them. Uber, Airbnb, Facebook all run via their own centralized servers.

Bitcoin is decentralized because it’s a blockchain (i.e. its ledger, which contains the running list of all of Bitcoin transactions since it was launched) that lives on not just one computer but approximately 83,000 of them. That means there are essentially 83,000 sources of truth for Bitcoin.

Another way to look at it, is that, if you were a hacker and you wanted to take Bitcoin offline, you’d need to take control of 51% of the Bitcoin network’s computing power, which equates to tens of thousands of bitcoin mining rigs, all around the world!

Basically, what you need to know is that decentralization, at scale, provides a more democratic and fair playing field. In colloquial terms, it’s nearly impossible to “cook the books”, when tens of thousands of nodes(or more, depending on the blockchain), keep identical copies of all transactions that have ever occurred on that particular blockchain.

Due to decentralization, a blockchain cannot be altered after the fact. The moral of the story is that decentralization, as a feature, provides a more democratic, and fair playing field for all participants on a particular blockchain, whether it’s community members holding tokens, retail and institutional traders, etc.

For these reasons, decentralization is a key feature of the MELD protocol. While there are financial products that do offer crypto-to-fiat loans, these products are centralized. This exposes users to the risk of their assets being seized if the company offering the product goes bankrupt, or if financial regulations change the company’s, or the user’s, country of origin.

Decentralization is certainly possible without being trustless, or non-custodial. Early peer-to-peer file sharing services such as Napster and Kazaa were decentralized, while being neither trustless(you had to trust you were downloading a song that wasn’t actually a virus) or non-custodial (there were no private keys at play–more on this in the next section).

“Your Keys, Sir” – Non-Custodial Wallets and Smart Contracts

It all comes down to your private keys. Either you control them, or you don’t. If you have your crypto on an exchange, it’s in a custodial wallet. If you’re buying and keeping your crypto on Coinbase, you are storing it in a custodial wallet.

Custodial wallets are arguably less secure than non-custodial wallets, which is a big reason why MELD is banking on the latter(pun intended). With our core goal of empowering our users and prioritizing user experience, the MELD platform is non-custodial, and always will be.

Custodial wallets are less secure because: a) If your account gets hacked, say goodbye to your crypto; b) If the IRS contacts the owner of your custodial wallet(say, Coinbase) and tells them to freeze it or give them your crypto assets, say goodbye to your crypto.

With a non-custodial wallet, you control your keys, which means you have all the power (over your keys). This also means that if you lose your password and your seed phrase, you will be forever locked out of your wallet. No tech support on earth would be able to help you then. The flip side is that this is what makes non-custodial wallets so secure!

Next, we’ll talk about what it means to be trustless.

Trust-less? Why Not “Trust-More”?

“Trustless” is a word that you often hear tossed about in the crypto space to describe blockchains. Honestly, the term trustless is somewhat ambiguous.

Before blockchains, there was mail order, then personal checks, then credit cards. These all required you to trust a third party, whether it was the postal service, the bank, or Visa/Mastercard. With most blockchains, such as Bitcoin, Ethereum, or Cardano, all transactions are logged, and publicly-searchable.

“Trustlessness” is all about distributing incentives so that everyone plays fair on the blockchain. Rather than having to trust a centralized entity like Bank of America or Visa, we can trust the blockchain.  Trust is distributed across the network’s stakeholders(e.g. developers, miners, and consumers)–by transacting on the blockchain we are “trusting everyone in aggregate”.

Trustlessness is a core element of everything we’re building at MELD. We’re currently building the platform on a five-year horizon. With MELD Improvement Proposals(MIPs), it’s conceivable that in five years, there will no longer be a need for MELD Labs, and MELD will be run by MELD token holders completely!

How’s that for trustless?

A More Equitable Financial System for All

We hope this gives some insight into what it means when we say that MELD is decentralized, trustless, and non-custodial, and built with a vision of a more equitable financial system for people across the planet.

If you’d like to dive into a more technical explanation of the MELD ecosystem, and what we’re building, we recommend checking out our most recent whitepaper.

Stay Tuned – MELD

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