Emerging Blockchain, Digital Assets, and DeFi

Related Topics: Digital Strategy, Financial Services

by Joe Mendel – 

New ecosystems based on immutable trust created by blockchain will revolutionize and re-imagine the current financial services operating and engagement environments.  Blockchain has every promise of being able to re-invent existing processes and lock in and carry valuable bits of information, transforming the way business is conducted.

There has been much hype around potential values created by the blockchain technologies which are finally becoming more accepted with some bearing fruit.  Blockchain of course as defined by Wikipedia is “A blockchain is a growing list of records, called blocks, that are linked together using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. The timestamp proves that the transaction data existed when the block was published in order to get into its hash. As blocks each contain information about the block previous to it, they form a chain, with each additional block reinforcing the ones before it. Therefore, blockchains are resistant to modification of their data because once recorded, the data in any given block cannot be altered retroactively without altering all subsequent blocks.”

Deloitte’s 2021 blockchain survey finds that global FSI leaders see digital assets—and their underlying blockchain technologies—as a strategic priority now and in the near future: In fact, nearly 80% of overall respondents say that digital assets will be “very/somewhat important” to their respective industries in the next 24 months.

Current use cases include discussions around:

  • Blockchain for mortgage – In late 2020, Redwood Trust entered into an exclusive agreement withLiquid Mortgage to determine how blockchain could be used throughout the residential mortgage loan ecosystem and to execute a pilot program with loans on a blockchain.
  • RCG is currently re-imagining the existing legacy home buying ecosystem and the mortgage application process and co-innovating a solution with a FI based on blockchain technologies.
  • Cryptocurrency adoption based on blockchain
  • Enhancement of cyber-security for mitigating fraud and attack risks
  • New methods of digital assets replacing cash and cash transactions such as custody, payments, digital investments/portfolios or NFT’s, Decentralized Finance Platforms (DeFi), tokenization of assets, contracts and IP types to name a few.
  • Identity proofing and decentralized identity standards empowered by the cyber-security mesh model, blockchain technology ensures privacy and allows individuals to validate information requests by providing the requestor with just the minimum required amount of information.
  • The travel industry is talking about digital blockchain based passports that immutably identify travelers, including citizenship and visa records, health history (including C-19 information), biometric identification markers, tracking of travel, tracking of luggage, etc. The applications are limitless.

Furthermore, why not create internal, “private micro intra-blocks” for intra company transactions and internal events that require audit creating immutable records to validate and speed up the action of auditing and reporting of findings.

Also, a number of companies are betting on and investing heavily in the new technologies.  Alerian and ETF Trends have launched eight indexes packaging together blockchain companies, crypto owners, companies that enable crypto transactions, miners, futures and more.  S&P Dow Jones was ahead of the curve, launching its own bitcoin, Ethereum and broad-based crypto indexes at the end of last year.

Financial services organizations experimenting with blockchain and there is every anticipation that it will become commonplace at a convergence point a few years out.

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