If hybrid is the future of finance, Current aspires to be the key that unlocks it

DeFi is beginning to expand beyond a niche market. The high interest available via saving and lending products, and multiple investment opportunities have begun to motivate people to enter the space. While the 2010s will be remembered as the decade where decentralized finance was born and developed, regular innovations teased a future that was more connected, open, individual, and filled with opportunities. The 2020s may be remembered as the decade where mass adoption began, as people begin to trust the alternate system, which is becoming increasingly more accessible and easy to understand. On the backend, what’s powering this shift is the concept of hybrid finance — a mechanism to bridge traditional finance with decentralized finance.

New York-based challenger bank Current is among those dedicated to the bridging process in the US. The firm initially attempted to introduce DeFi products in 2018 with a points platform built on the blockchain, but the company put the idea on hold as the economics didn’t work out then. It wasn’t until 2021 that the firm began to offer customers solutions built on the blockchain. Many of these customers couldn’t previously access the world of DeFi, gatekept by educational and technical barriers. 

In May, Current announced a partnership with Acala, a decentralized finance platform built on the Polkadot blockchain network. The integration with Acala was built directly into Current Core, Current’s proprietary core banking platform, and enables Current’s three million users to access to Acala’s suite of cross-chain financial applications, like trading, issuing self-serviced loans, becoming liquidity providers, accessing staking derivatives, and earning high-interest yield on their digital assets. 

In June, the firm announced that it had collaborated with Compound Labs to bring offerings based on Compound Treasury to its customers. Compound Treasury is designed for non-crypto native businesses and financial institutions to access the Compound protocol, which is an autonomous interest rate protocol built for developers. To put it simply, it allows Current to offer consumers high yield saving accounts.

Trevor Marshall, Current’s CTO, believes that the majority of the market has begun to develop interest and is ready for HyFi offerings. He says the decentralized space is also ready, with innovative products and services allowing greater returns than traditional finance. And in moving early relative to the market, there is value for Current customers.

“I think the [question of] ‘why now’ is very much because these products exist, and if we think about the maximum outcomes. There is real value to bring. For example, right now the best way to buy something on Amazon is with a debit card, right? And the best way to earn a 4% yield, or any percent higher than 25 basis points, is really on the blockchain. So that's what's driving our direction there,” he said, speaking at Tearsheet’s The Big Bank Theory Conference in November. “For us, the business model is one of aligning purely with the customer outcomes.”

Marshall believes that there was a measurable sea change in people’s attitudes towards DeFi in 2021. 2017 saw the first bull run in the space, getting a lot of people excited, but the 2018 crash changed that attitude to skepticism. In 2021, with tools like Robinhood and Coinbase gaining popularity, people’s perception of DeFi improved, and their desire to be involved grew. Products like crypto lending and trading and DeFi derivatives are among the few products that have attracted people. But they’re still relatively hard to use -- so, in this context, almost everybody is underbanked when it comes to easy onboarding to DeFi. Providing easy access to DeFi promises to create value for banking services like Current.

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“The value [in DeFi] does exist today, but very few people are taking advantage of it. I'm fairly technically savvy, have overcome most of that educational barrier, and yet I'm doing one or two [DeFi activities], but there's a ton of opportunity that I'm not taking advantage of,” Marshall confessed.

There are several barriers to entry in the DeFi space, and Current’s mission is simply to make it easier for people to interact with decentralized technologies. There are several technical aspects to  using cryptocurrency that may startle newcomers, like buying a stablecoin, setting up a wallet, and accessing a crypto exchange. And hence, Current wants to be a facilitator that helps people understand the DeFi space and makes it simple for them to access it, providing diligence to help mitigate the risk of mistakes.

Current is in a fairly unique position to provide these services. Early in its journey, Current launched prepaid cards aimed at the teenage market. As a result, its customer base consists of young people just beginning to plan their financial lives. This demographic is also more up to date with today’s trends, with a desire and tech-savviness to participate in and benefit from DeFi.

Current brings HyFi offerings to its platform by building interface layers. Hence, Current doesn’t need to build its own technology for DeFi products — it integrates other companies’ protocols directly into its core technology, something the company made a point to build itself.

To retain control while providing customers with desired solutions, Current runs its own core technology and integrates third-party products to its core. This allows consumers to keep their account balances with Current and benefit from integrated DeFi, which happens within the Current app.

Another benefit of running its own technology is that Current can still build its own products, like its overdrive feature, which lets customers overdraft up to $100 with no overdraft fees. Because Current controls the system of record, it controls its own destiny.

“If you outsource the system of record components, you're also outsourcing all of the required integrations for changing that balance. You need to have that flexibility,” Marshall said. 

“Otherwise, that flexibility needs to be built by a third-party partner that may not be incentivized to perfectly align with your roadmap. And so, we wanted to have full control in the way that we proceeded. If we want to build something new, even though it is more of our own time, it is completely on our timeline. We can set priority in terms of the things that we want to bring to life.”

It’s still early days in DeFi’s development into a full-fledged financial ecosystem, and patience is key, Marshall said. Even Current’s initial DeFi offerings are themselves in the early stages of their development. Consequently, a portion of Current’s effort with HyFi is just to plan ahead of time, anticipate how technologies will shape up, and play the waiting game.

The firm is all geared up for 2022: Marshall revealed the firm is working on releasing new products. The first to roll out will be its first high yield interest product. 

The general focus, he said, is to improve the app’s experience. “But generally, we're really focusing on our core platform, our core experience, ensuring that every interaction you're having with Current is best in class,” he said.

In April 2021, Current raised $220 million in a Series D funding round, valuing the challenger bank at $2.2 billion. The round saw the firm triple its valuation 5 months after its Series C funding, where it was valued at $750 million.