DeFi
Deutsche Bank and Northern Trust launch white paper to explore path to institutional DeFi
German Bank And Northern Trust have collaborated to produce an industry white paper “The Road to Institutional DeFi”. The article examines the evolution of decentralized finance (DeFi) and its driving forces, demystifies its frequently used terms, and examines how it will shape the future of financial institutions.
The evolution of DeFi and its potential for application to institutional use cases (in which financial applications are built on blockchain technologies deploying smart contracts) is of growing interest to the financial services sector.
Although progress has been cautious thus far due to the ever-changing macroeconomic and regulatory landscape, early successes that demonstrate DeFi’s potential to change market structures and operating models once adopted by financial institutions were obtained.
The paper was authored by Boon Hiong Chan, Deutsche Bank’s Head of Industry Applied Innovation and Head of Securities and Technology Advocacy for Asia Pacific and Dan J Sleep, Head of Assets Northern Trust’s digital and financial markets services for Asia Pacific. The report briefly reviews the history of native DeFi, summarizes key features of decentralization that can be adapted for institutional use, and highlights how institutional DeFi is taking shape.
Institutional DeFi is a catalyst that can give rise to a new financial paradigm that reduces historical industry costs, potentially without incurring significant new costs, depending on the type of blockchain and other choices made. Current implementations can be seen in tokenized funds in asset management.
Mike Clarke, Global Head of Product Management, Securities Services, Deutsche Bank, said: “Although we are currently in the early stages of institutional adoption of DeFi, the technological and regulatory frameworks have reached a good level of maturity. We are at the stage where we can achieve the balance between new regulatory compliance and new inherent operating models. By engaging with regulators and industry, working closely with clients and strategic partners, and undertaking our own projects, we can work together to encourage further institutional adoption of DeFi and create sustainable growth.
Justin Chapman, Global Head of Digital Assets and Financial Markets at Northern Trust, said: “The next stage of digital markets and product evolution in the DeFi space is certainly exciting. Leverage the inventory of capabilities we continue to develop; we see significant opportunities to innovate and generate profits throughout the value chain. With an increased need for transparency, liquidity and efficiency while adding enhanced products through augmented data and actionable insights. Substantial progress will require a continued focus on data, risk management and governance, as well as collaboration with strategic partners to develop an interoperable and connected ecosystem to bring it all to life.
To download the document, Click here.