ARX Series 9 September 2020
The Sudden Rise of Decentralized Finance
Opportunities and Risks for Financial Services
Although decentralized finance has the potential to disrupt traditional finance, leaders in incumbent financial services also have the opportunity to participate in it and shape its impact on their businesses.
Authors: BCG Platinion: Igor Mikhaelev, Kaj Burchardi, Paul-Emmanuel Tasiaux; Crypto.com: Kendrick Lau, Erik LieRead Article
A surge of interest in decentralised finance is leading the market to question whether this is a bubble ready to burst, or whether it can overcome its growing pains to become a sustainable alternative to services offered by traditional centralised finance.
The proponents of decentralised finance will argue that it casts the net wide to individuals and institutions who can access financial applications, that perhaps couldn’t before. And without the need for a trusted intermediary inside a permissionless ecosystem.
The detractors will claim that the financial services sector has already invested $1.7bn in blockchain (according to Greenwich Associates). And yet beyond the volatile world of bitcoin, it has had very little impact. Furthermore, regulation is desperately required and there are low levels of liquidity resulting in low utilisation amongst established enterprises. But challenges in traditional finance must also be considered in the context of socio-economic development.
As it stands, centralised finance (CeFi) encourages financial institutions with larger balance sheets to pursue conglomeration and increase shareholder value through rent-seeking behaviour. But the next wave of demand for capital and financial services will stem from emerging economies and an SME industry underserved by traditional finance.
Founded in 2016, Crypto.com provides its 3 million+ customers with an alternative to traditional financial services through its card, app, exchange and decentralized finance offerings. It is headquartered in Hong Kong with a 500+ strong team.