Corporate Finance News

Dimanche 11 Octobre 2020

Digital Bank + DeFi may become a pivot point levering traditional finance

The release of digital currencies by the People's Bank of China may cultivate users' habit of using personal digital encrypted wallets, which will promote the popularization of block chain digital assets and Defi to a certain degree.

Therefore, the GSR Matrix Fund invited Ender Xu (GSR Matrix Fund Managing partner), Bertie (Jackdaw Capital CEO), and Edge Wang(blockchain technology and financial technology expert) to discuss whether the point of integrating traditional and digital finance is dawning.

Almost all financial services, such as stock transactions, derivatives, mortgages and loans, that only involve the transaction level of the industry, have corresponding plans from DeFi. Its transparency and feature of permissionless may in fact make the regulatory authorities more reassured, so will the users be, who invest with their money, as assets are locked through smart contracts, greatly reducing the likelihood of moral risks. In fact, online finance is to make such financial services civilian on a large scale, but due to the lack of transparency of the centralized systems, many moral risks occurred, preventing P2P from achieving its original aim. From this perspective, DeFi may accomplish these historical missions unfinished by the online finance and form a brand-new financial service system. -- Edge Wang

According to my personal judgment, reduced non-friction experiences on the part of users, radical fall in the gas fees, full-scale improvement of security performance and relatively high return anticipation should bring huge influence on traditional finance. The logic behind is in fact the fundamental improvement and reform of infrastructure. I believe the greatest impact on financial institutions is opposition to shared governance. The true genes of DeFi are decentralized and permissionless both in terms of technology and philosophy. It takes time to change the status-quo, or gradually integrate. Traditional financial institutions may lose opportunities at this stage. -- Ender Xu

Main Factors currently in what will make a traditional VC invest in DeFi is calculated diversification. Understanding we stand on the precipice of fiscal change, economically, politically. Trust is becoming increasingly valuable. DeFi poses an intelligent solution. -- Bertie

My personal investment logic in the field of DeFi is technical innovation, business logic and algorithm models of projects.The Cheese Lending Protocol currently shows me the new possibilities of future Defi Lending with the creative mechanism allowing LP token as the collateral. One of the groups in real demand of mobility is DEX market-makers. They can gain profit from market-making after providing DEX with funds, but the voucher of the liquidity pool they get (LP) is a kind of assets lacking liquidity--underlying assets, right to earnings and all other rights are deprived after selling in the secondary market. Therefore, their liquidity terminates due to market making. The only solution is to allow them to pledge and loan with LP, similar to the model of pledging with stocks and real estates: assets, rights and interests are still theirs, but there is new liquidity gained, enabling them to further invest in other assets, and redeem assets simply by paying interest. This is a real model that improves liquidity. Cheese Bank detects such an opportunity, therefore, I propose it as a case here and look forward to their development. -- Ender Xu

I think when DeFi and digital banking come together we'll see a banking system that runs completely autonomously - without people, without bank branches, without lengthy application or legal processes. A system where smart contract functionality will allow anyone with a smartphone to instantly tap into a wide range of financial services 24/7, 365 days a year. -- Bertie

I believe digital banks should have huge advantages to enter the quality mainstream tangible assets into the rising DeFi field, as licensed exchanges in the field of digital assets or other institutions that can issue stable currencies like USDC or GUSD all turn up with identities similar to currency exchange institutions of exchanges, applying for regulatory licenses in all countries to issue stable currencies. From the perspective of digital banks, in turn, digital banks have naturally been qualified to operate licensed bank transactions all round the world, making it possible to connect with the digital assets field by simply adding the condition of permission to issue stable currencies. It is obviously a non-financial institution, or a financial institution with narrow business scope, boasting much greater advantages in doing this. Other transactions such as assets pledge are pretty easy to be realized, since this is also allowed in the business scope of banks, much easier than accessing to this transaction by a purely digital asset institution. -- Edge Wang

Products such as MakerDao are a universal currency for those native digital assets users (and investors with digital assets) in a DeFi (decentralized finance) wold. Therefore, their limitation is actually the overall currency value of their existing digital assets. Current digital banks and funds are exploring how to link the huge tangible assets and old money outside DeFi to a freer and fairer DeFi platform through compliance. I believe only with the appearance of such products can DeFi's world atlas become strong enough. —— Ender Xu

Read the entire interview:

SOURCE GSR Matrix Fund

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