In an annual letter from Jamie Dimon to JPMorgan Chase shareholders, he clearly states:DeFi and blockchain are real, It caused some comments in the crypto circle given his previous statement that “I don’t care about Bitcoin”. I’m not interested in it. But tokenization is huge, and I think it’s possible to believe that the decentralized protocol will play a crucial role in next-generation financial services, while at the same time being skeptical that cryptocurrencies will play a major role. increase.
DeFi without Bitcoin? Opinions are certainly divided, but when it comes to the funny spats going on between Marc Andreessen and Jack Dorsey, I’m on the Andreson side of the fence.Bitcoin I don’t understand at all
I don’t see this as a controversial position. In fact, I think this has long been the view of serious players in the mainstream of financial services. Irfan Ahmad, VP of State Street, the world’s largest custodian bank, recently said that cryptocurrencies have not only just entered another winter, but also “Polar vortexThis seems reasonable given the collapse of the Decentralized Finance (DeFi) protocol and the news that ThreeArrows Capital has filed for bankruptcy. But under the ice, he and other investment banks used shared ledge technology to create digital representations (ie tokens) linked to real-world hard assets instead of including speculative cryptocurrencies. We are working to build a new trillion dollar market to use.
There is no paradox. Whether cryptocurrencies survive the upcoming regulatory storm, central bank digital currencies, instant payments, and digital IDs, institutional markets will eventually use new infrastructure to digitalize bonds, gold and carbon. Trade in format. Goods are not the only products that are tokenized and traded without settlement or settlement. Banks use technology to tokenize all forms of collateral, including ownership. As the Bank for International Settlements (BIS) states in its current bulletin (June 14, 2022, No. 57), “DeFi lending is a large real-world asset unless you want to maintain a self-referencing system. You need to be involved in large-scale tokenization. It’s backed by speculation. “
Tyrone Lobban, Head of Onyx Digital Assets at JPMorgan, in a talk at Consensus 2022 last month. Detailed explanation He emphasized the bank’s DeFi program for institutional investors and the value of tokenized assets awaiting at the wings. He said all tokenized assets, from US Treasuries to money market fan shares, can be used as collateral for DeFi pools, bringing trillions of dollars in assets to DeFi. This will allow these new mechanisms to be used for trading and borrowing. [and] Although it is a loan, there is a large amount of assets of institutional investors. “
This is a brand new financial services sector and will be an important sector. As economists pointed out, tokens can be almost any digital representation, so “tokens can be an efficient solution to any kind of economic problem.” Above all, tokens mean a low-cost trading environment. Therefore, large companies want to use tokens as soon as the regulatory environment stabilizes.
As Thomas Zschach, Chief Innovation Officer of SWIFT Put it: “Today’s financial institutions are usually not involved in unauthorized digital assets due to their unregulated status and anonymity … but many financial institutions, central banks, market infrastructure, and SWIFT. Other financial institutions, including, are experimenting with digital assets, especially CBDC and tokenized assets. “
why? SWIFT states that it is about discovering new opportunities to increase efficiency, reduce costs, promote financial inclusion and continue to bring more value to the community. This is not a unique perspective. That’s why visionary financial institutions are paying attention. Not for ideology, but for money.
One of the needs for the emergence of institutional DeFi is digital identity infrastructure due to the need for KYC etc. in the legitimate market.This is already starting to happen here and there (for example, in Aave)
We were fortunate to have Tyrone join the Digital ID Panel at Money 20/20 in Amsterdam last month. He is a caring person and I take his view very seriously. In his view, the way forward here is to use digital identity building blocks such as the W3C Verifiable Credentials (VC). I fully agree with his view. VC is the key to extending the solution: “Because no verifiable credentials are held on the chain, there is no overhead of writing this kind of information to the blockchain and paying for it, such as gas bills.”
That’s right. It also has another important advantage of privacy.
I can see clearly
Transparency is one of the main reasons we all want to see the newly reborn financial sector. Take a look at some of the recent problems in the financial world, such as the collapse of wirecards. Corporate accounting simply included assets that did not exist. Here it is reasonable to ask if technology can do a better job, as auditors, regulatory agencies, and the board have failed to prevent crime on a large scale. Well, I think the answer is yes. I think tokenization is part of a consistent vision of how it will be done. If you claim to own a thousandth of the Mona Lisa, it’s easy to see your digital asset platform. Make sure you have a token in my wallet that represents the 1/1000 of the Mona Lisa. You don’t have to rely on auditors or other intermediaries.
DeFi has several important advantages, as evidenced by the current crypto cryogenic winter vortex or what it is currently called.Arthur Hayes Precise note The DeFi protocol manages several huge loan books with completely transparent lending standards, counterparty addresses, and clearing levels. Observers can continually assess the health of these books. Depositors can process all relevant information about the status of various protocols before investing funds. In addition, when the value of collateral decreases, it is automatically settled so that there is no bad debt.
However, transparency does not mean that everything needs to be visible to everyone at all times. Wharton School published a dissertation on “DeFi Beyond The Hype” last year. This indicates that there may be some tension between the auditability and transparency of shared ledger records and the privacy of stakeholders. It’s one thing for me to look up a loan book in a shared ledger somewhere and determine that you’re a solvent, and it’s completely different for me to know who your opponent is. ..
Business cannot work that way. Secrets are essential to commerce.. Not only is it important for companies to protect the privacy of their customers and suppliers, but they also do not want to reveal their strategies to their competitors. Anonymity doesn’t work in the market, but full transparency doesn’t work for participants. What is needed is privacy in a well-regulated environment, not the anonymity of the permit minus the blockchain. This provides verifiable credentials. With a proper trust framework, I can easily qualify that I am a US citizen over the age of 18 and have an intermediary account, for example, without telling the world who I am.
(But if I don’t go well, these important attention providers, of course, pass on my true identity to the power of law and order.)
This creates a link between DeFi, verifiable credentials, and a governance structure that enhances privacy. This is a potential site for a kind of big bang in the financial world. Creating a new world of financial services.
That’s why I agree with Richard Turin The person who wrote it There is an urgent need to “fix rampant corruption, fix the DeFi protocol that promotes leverage, fix fraud, and fix the culture of greed.”And Lisa Wade Who says “Once regulations are applied, portfolio management knowledge is essential to bring these new asset classes into the portfolio.”
They are certainly right to say that DeFi will change financial services for the better.