I am convinced that the future of finance lies in the broader adoption of public blockchains, Jan Brzezek writes in an article for finews.first.
This article has been published on finews.first, a forum for authors specializing in economic and financial topics.
I expect every bank in Switzerland will be offering cryptocurrencies in the next two years and every bank in Europe in the next five years. They will then progress to tokenize assets like art and real estate within 10 to 15 years. And, lastly, I think decentralized finance (DeFi) based on blockchain technology has the potential to transform banking’s entire value chain over the next 30 years, bringing the benefits of lower fees and increased transparency to all aspects of finance.
While cryptocurrencies are known for their volatility, in fact, blockchain technology may help to make the financial system more robust. 2023’s wave of bank failures has revealed how e-banking apps and real-time withdrawals have left banks more vulnerable. But using smart contracts instead of traditional methods of settlement would reduce counterparty risk by making settlement immediate rather it is taking two days. What’s more, it would increase transparency at a time when finance is becoming increasingly complex.
«What will it take for traditional finance and crypto finance to converge?»
The potential of decentralized finance (DeFi) is immense across lending, borrowing, and investment. The most tangible use case is digital assets like Bitcoin, which can be transferred around the world 24 hours a day, seven days a week. But beyond that are tokenized assets. They allow you to issue a token in less bankable assets like art, cars, or houses. With the expansion of ebanking you could have a wealth portal including all of an individual’s assets. Clients would start to interact with their banks completely differently, in a much more passionate way.
Turning to intellectual property, tokenization would enable a pharmaceutical company to directly fund costly research and development. Right now, if you want to invest in the development of a COVID-19 vaccine, for instance, you need to invest in Pfizer. But Pfizer could issue tokens against specific drug development programs, which investors could then buy.
What will it take for traditional finance and crypto finance to converge? Regulation of digital assets is the most important first step. Just a few weeks ago, the European Union introduced its well-designed Markets in Crypto Assets (MiCA) Regulation: a game changer that will lead to a wave of product innovation. Both the UK and Hong Kong are also preparing regulations, while unfortunately, the US has so far not agreed on a specific way forward.
«For DeFi to achieve its full potential, there must be interoperability between blockchains»
Europe’s financial institutions have largely been waiting for regulatory certainty before offering cryptocurrencies to their clients, which is the first step towards convergence. Now many of them will do so, catching up with the many Swiss financial intermediaries that started to offer such services after Switzerland introduced crypto regulations in 2021.
Regulation will lead to consolidation as smaller, offshore crypto firms close or merge with more established firms that can comply with the new requirements. At the same time, some big established financial companies are getting into the market. They can afford to charge less or scale up better than start-ups.
Collaboration is also required for convergence. Traditional finance must collaborate with DeFi, recognizing the benefits of adopting blockchain technology. Deutsche Börse’s 2021 acquisition of Crypto Finance is a sign of things to come. The Group monitors different areas with a view to buying well-run companies that can extend their existing value chain. A lot of its trade and post-trade operations could be run on the blockchain in years to come, boosting efficiency, lowering cost, and increasing transparency.
But for DeFi to achieve its full potential, there must be interoperability between blockchains with different use cases. For instance, secure bridges must join up central bank digital currencies, stablecoins, and smart contract platforms.
«It’s going to be a complex process»
I would be surprised if any bank or asset management company's board did not explore the potential of crypto assets, tokenization, or blockchain technology generally. It’s clear to me that the adoption rate is rising. People have realized that digital assets and it’s underlying technology is not going away. So they are looking for ways to adopt it into their business models.
There is an opportunity to embrace the best of traditional and crypto finance. Over time, blockchain technology will transform traditional finance, helping to reduce the risk in the system. But it’s going to be a complex process, which requires time, risk risk-taking, and the willingness of all stakeholders to innovate.
Jan Brzezek is the CEO and founder of Swiss-based Crypto Finance and a board member of Crypto Finance (Asset Management). In 2017, he started his journey as a first-generation entrepreneur and founded Crypto Finance. Today the firm is a Finma-regulated financial institution and a member of Deutsche Börse Group, offering digital asset solutions in asset management, brokerage, custody, infrastructure, and tokenization for financial institutions. An alumnus of Zurich University of Applied Sciences and UBS Asset Management, Wealth Management and Investment Bank, he has extensive experience in the sector and has led several complex global projects during his time at UBS and SIX Swiss Exchange.
Previous contributions: Rudi Bogni, Peter Kurer, Rolf Banz, Dieter Ruloff, Werner Vogt, Walter Wittmann, Alfred Mettler, Robert Holzach, Craig Murray, David Zollinger, Arthur Bolliger, Beat Kappeler, Chris Rowe, Stefan Gerlach, Marc Lussy, Nuno Fernandes, Richard Egger, Maurice Pedergnana, Marco Bargel, Steve Hanke, Urs Schoettli, Ursula Finsterwald, Stefan Kreuzkamp, Oliver Bussmann, Michael Benz, Albert Steck, Martin Dahinden, Thomas Fedier, Alfred Mettler, Brigitte Strebel, Mirjam Staub-Bisang, Nicolas Roth, Thorsten Polleit, Kim Iskyan, Stephen Dover, Denise Kenyon-Rouvinez, Christian Dreyer, Kinan Khadam-Al-Jame, Robert Hemmi, Anton Affentranger, Yves Mirabaud, Katharina Bart, Frédéric Papp, Hans-Martin Kraus, Gerard Guerdat, Mario Bassi, Stephen Thariyan, Dan Steinbock, Rino Borini, Bert Flossbach, Michael Hasenstab, Guido Schilling, Werner E. Rutsch, Dorte Bech Vizard, Adriano B. Lucatelli, Katharina Bart, Maya Bhandari, Jean Tirole, Hans Jakob Roth, Marco Martinelli, Thomas Sutter, Tom King, Werner Peyer, Thomas Kupfer, Peter Kurer, Arturo Bris, Frederic Papp, James Syme, Dennis Larsen, Bernd Kramer, Armin Jans, Nicolas Roth, Hans Ulrich Jost, Patrick Hunger, Fabrizio Quirighetti, Claire Shaw, Peter Fanconi, Alex Wolf, Dan Steinbock, Patrick Scheurle, Sandro Occhilupo, Will Ballard, Nicholas Yeo, Claude-Alain Margelisch, Jean-François Hirschel, Jens Pongratz, Samuel Gerber, Philipp Weckherlin, Anne Richards, Antoni Trenchev, Benoit Barbereau, Pascal R. Bersier, Shaul Lifshitz, Klaus Breiner, Ana Botín, Martin Gilbert, Jesper Koll, Ingo Rauser, Carlo Capaul, Markus Winkler, Konrad Hummler, Thomas Steinemann, Christina Boeck, Guillaume Compeyron, Miro Zivkovic, Alexander F. Wagner, Eric Heymann, Christoph Sax, Felix Brem, Jochen Moebert, Jacques-Aurélien Marcireau, Ursula Finsterwald, Michel Longhini, Stefan Blum, Zsolt Kohalmi, Karin M. Klossek, Nicolas Ramelet, Søren Bjønness, Gilles Prince, Salman Ahmed, Peter van der Welle, Ken Orchard, Christian Gast, Jeffrey Bohn, Juergen Braunstein, Jeff Voegeli, Fiona Frick, Stefan Schneider, Matthias Hunn, Andreas Vetsch, Fabiana Fedeli, Kim Fournais, Carole Millet, Swetha Ramachandran, Thomas Stucki, Neil Shearing, Tom Naratil, Oliver Berger, Robert Sharps, Tobias Mueller, Florian Wicki, Jean Keller, Niels Lan Doky, Karin M. Klossek, Johnny El Hachem, Judith Basad, Katharina Bart, Thorsten Polleit, Peter Schmid, Karam Hinduja, Zsolt Kohalmi, Raphaël Surber, Santosh Brivio, Mark Urquhart, Olivier Kessler, Bruno Capone, Peter Hody, Michael Bornhaeusser, Agnieszka Walorska, Thomas Mueller, Ebrahim Attarzadeh, Marcel Hostettler, Hui Zhang, Michael Bornhaeusser, Reto Jauch, Angela Agostini, Guy de Blonay, Tatjana Greil Castro, Jean-Baptiste Berthon, Marc Saint John Webb, Dietrich Goenemeyer, Mobeen Tahir, Didier Saint-Georges, Serge Tabachnik, Vega Ibanez, David Folkerts-Landau, Andreas Ita, Michael Welti, Mihkel Vitsur, Fabrizio Pagani, Roman Balzan, Todd Saligman, Christian Kaelin, Stuart Dunbar, Carina Schaurte, Birte Orth-Freese, Gun Woo, Lamara von Albertini, Ramon Vogt, Andrea Hoffmann, Niccolò Garzelli, Darren Williams, Benjamin Böhner, Mike Judith, Jared Cook, Henk Grootveld, Roman Gaus, Nicolas Faller, Anna Stünzi, Thomas Höhne-Sparborth, Fabrizio Pagani, Guy de Blonay, Jan Boudewijns, Sean Hagerty, Alina Donets, Sébastien Galy, Roman von Ah, Fernando Fernández, Georg von Wyss, Stefan Bannwart, Andreas Britt, Frédéric Leroux, Nick Platjouw, Rolando Grandi, Philipp Kaupke, Gérard Piasko, Brad Slingerlend, Dieter Wermuth, Grégoire Bordier, Thomas Signer, Brigitte Kaps, Gianluca Gerosa, Christine Houston, Manuel Romera Robles, Fabian Käslin, Claudia Kraaz, Marco Huwiler, Lukas Zihlmann, Nadège Lesueur-Pène, Sherif Mamdouh, Harald Preissler, Taimur Hyat, Philipp Cottier, Andreas Herrmann, Camille Vial, Marcus Hüttinger, Ralph Ebert, Serge Beck, Alannah Beer, Stéphane Monier, Ashley Simmons, Lars Jaeger, Claude Baumann, Shanna Strauss-Frank, Bertrand Binggeli, Marionna Wegenstein, George Muzinich, Jian Shi Cortesi, Razan Nasser, Nicolas Forest, Joerg Ruetschi, Reto Jauch, Bernardo Brunschwiler, Charles-Henry Monchau, Florin Baeriswyl, Philip Adler, Brigitte Kaps, Andrew Isbester, Ha Duong, Teodoro Cocca, and Beat Wittmann.
