"DeFi will eat TradFi. The key is via Real World Assets." Week 39, Blockchain+Banking
quote from Jack Chong, author of "An Unreal Primer on Real World Assets"
At Fin3 we believe that Financial Services are going to run on blockchain in 10 years. It's a much more efficient operating system for finance than today's 40-year old infrastructure and will let banks, asset managers, and investors create and use new financial products.
But how do we get there?
There was a great writeup published last week on that topic. Some highlights: - DeFi tech has to deliver a marked improvement over the existing system to be adopted
- the easiest area for DeFi tech adoption is niche markets that are underserved by traditional capital markets (trade finance, agriculture, revenue based finance, loans to crypto miners)
- at the same time DeFi is starting to be used for high-quality, deeply liquid assets, like Figure's DART registry for prime mortgages or Backed Finance AG's proposal to tokenize a government bond ETF
- the transition to using DeFi technology is likely to be gradual, and DeFi and TradFi will coexist until DeFi tech is more widely adopted
- DeFi for real assets has to operate within the existing legal system
- there is nontraditional capital in the crypto system that will invest in real-world asset DeFi
- Asset managers will start to use DeFi to source investments in areas where systemized access is poor in TradFi - right now originating real-world assets for DeFi protocols is easier than attracting capital
- Web2 FinTechs (Pipe, Uncapped, LSQ Funding, Revolut) are likely to start using DeFi protocols as origination and distribution channels
- they think of the Real World Asset ecosystem in three groups: 1) Representation and Ownership of Assets (how are liens and titles recorded, how is asset data represented) 2) Infrastructure (reg tech, stablecoins, tokenization, secondary markets)
3) Asset Specialists (originators of assets in certain asset classes like Real Estate, Insurance, Revenue based financing, etc.) The paper goes on to list multiple companies in each group, worth reading if you're interested. It's impossible to predict how adoption of this new technology is going to play out, but the above points make a lot of sense to us. In all cases, though, we believe that a fully reserved on-chain payment mechanism, either tokenized deposits or 1:1 fully reserved stablecoins, is table stakes, and that is what we provide at Fin3.