“The ability to treat cryptocurrencies as an asset is just the beginning of transforming financial services,” Dan Donny, CEO of Securrency, a digital asset infrastructure company focused on using blockchain for financial services, told Looking Alpha in a recent report. an interview.
Doni pointed out that the global market hat of cryptocurrencies, which were at $908.6 billion at the time of writing, nowhere near the “$1.4 quadrillion scale” that represents the traditional financial services industry. “But it’s really just the tip of the iceberg.”
His comments come as a growing number of major players in traditional finance (TradFi) are deepening their involvement in various areas within decentralized finance (DeFi), including lending, custody and derivatives trading. This trend remains the same even with the prices of a digital token like Bitcoin (BTC-USD) and ethereum (ETH-USD) falls victim to a pullback of more than 70% from its peak in November 2021, confirming at least institutional demand to explore DeFi solutions in response to growing customer interest in blockchain technology and token products.
Securrency itself is developing a blockchain-focused framework for managing financial services that enables access to traditional assets in token form. The company will act as a transfer agent for WisdomTree’s short-term digital treasury fund (WTSY) where it will keep the primary record of stock ownership of the fund and, unlike traditional mutual funds, it will store a secondary record of shares in any of the Stellar)XLM – US Dollars) or ethereumETH-USD) Blockchain.
Donnie explained that WTSY recently got the green light from regulators for a “1940 Law Token Fund” to enable exposure to a range of different investment strategies in token form – the kind of thing you can keep in your blockchain wallet.
This is significant because digital asset markets never shut down, he said, which is “a significant advance over existing market structures.” Also, blockchain speeds up speed and reduces transaction costs (T-0 settlement versus T-2 clearance for traditional markets).
Regulatory compliance is key:
Some industry leaders have argued that a lack of regulatory oversight prevents TradFi participants from entering DeFi. Meanwhile, Doni stressed that “the regulatory guidance is clear,” adding that “it’s not wise to see if you can get around regulations. Instead, rely on the model and actually automate key functions to get better oversight and then you can unlock the value.” true decentralization” with the ultimate goal of instant settlement and automated compliance via the blockchain.
Donnie said the regulatory landscape, though, is “very fragmented.” The lack of coordination between the Securities and Exchange Commission, the Commodity Futures Trading Commission, and others “is slowing our pace of innovation,” in a dynamic that can “lead to parties traveling abroad.”
Over the summer, the Federal Reserve clarified that depository institutions are considering offering crypto-related activities You must have systems and controls in place Sufficient enough to safely conduct such activities.
Encrypted custody payment:
Look no further than Bank of New York Mellon (BNY) to understand just how bridging the gap between TradFi and DeFi is progressing, albeit in the early stages. Earlier this month, the bank introduced its lender digital asset custodian platform To allow some US customers to hold and transfer Bitcoin (BTC-USD) and ether (ETH-USD), paving the way for increased cryptographic adoption.
“Institutional adoption of cryptocurrencies continues to rise at unprecedented levels,” said Eric Chen, CEO and co-founder of Injective Labs. “Having access to institutional guards like BNY Mellon allows larger players to join the broader crypto ecosystem as it adds more confidence to the overall space.”
Even recently, the French banking giant Societe Generale (OTCPK: SCGLF) Cryptographic work, Forge, was win registration With the Autorité des Marchés Financiers for safekeeping and trading of digital assets. In general, there are a large number of lenders who have at least considered adding crypto-related services that include Bancorp clients (Cuban), Metropolitan Bank (MCB) and SVB Financial (SIVB).
In general, though, the traditional financial structure doesn’t provide individual (unaccredited) investors nearly the same access to financial markets (think of something along the lines of private offerings) that institutional investors have — that’s where the blockchain comes in.
“Allowing more regular users to enter the market allows it to be more capital efficient in some ways,” Chen explained in a statement emailed to the SA. But banks that offer DeFi-centric solutions to their customers “must be compliant, protecting users’ private keys and also setting up systems to unlock events in the event those keys are lost.”
When asked whether banks’ crypto-custodial platforms provide adequate investor protection for their retail clients, Chen said, “Banks will of course be fully compliant in their offerings when holding crypto assets that provide financial protection to users.” However, “It is difficult to make a public statement and claim that all banks are safe. As we have seen many times in the past with bank runs or other black swan events, banks can lose your money which means they can also lose your cryptocurrency.”
Find out why Morgan Stanley thinks the crypto ecosystem is become less decentralized.