Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
9 digital assets powering the DeFi revolution?
Forkast | Alex Tapscott | Nov 8, 2021
Financial services, foundational to all industry and economic activity, is going through the greatest upheaval since the invention of double-entry bookkeeping in the Middle Ages. Every aspect of the industry is about to change, from how we move and store value to how we access credit, invest, trade, transact and insure against risk. But this upheaval is about more than changes to existing industries like banking or insurance. It’s about enabling new business models and organizational capabilities that will transform existing industries, redefine the architecture of the firm and other institutions, change profoundly how we interact online with companies and with each other, alter the fabric of daily life, reimagine the nature of work and more.
See: Want to launch an ecosystem? Consider Tokenization
Blockchains are tamper-resistant ledgers of transactions distributed across a network maintained by many parties. These shared ledgers serve as common sources of the truth. In effect, they supplant the records of banks, governments, corporations and the large technology companies that intermediate much of the digital economy. Blockchains are the first digital medium for value, just as the internet was the first digital medium for information.
In this brave new world, we can move, store, manage, organize, govern, create, fragment and direct anything and everything of value to whatever end we desire, peer to peer.
Financial services are no longer centralized within an industry; they are decentralized across blockchain networks such as Bitcoin, Ethereum, Solana, Terra Luna, Avalanche and Cosmos. Decentralized finance (DeFi) is shaking the windows and rattling the walls of Wall Street banks, government agencies and global institutions. Call it the DeFi Revolution. Like many revolutions, it holds great promise and great peril. Critics malign its chaotic and seemingly uncoordinated growth and its potential to displace jobs and accuse it of undermining the monetary sovereignty of governments, exacerbating inequality and warming the planet.
See: Barclay’s Rise report: Decrypting Crypto November 2021
To be clear, DeFi is not fintech. Fintech applications, while important, still require banks and other intermediaries to establish trust between parties, verify account balances and perform the business logic — clearing, settling, contracting and so forth — that makes the system work. And in the end, most fintech innovation is digital wallpaper — a sleek user interface that conceals the old system beneath. Instead of slapping on a fresh coat of paint, DeFi reimagines finance from a networked point of view with digitally native assets, or tokens.
Our token taxonomy has grown to nine assets:
Non–fungible tokens (NFTs): NFTs are unique, provably scarce digital assets; they provide a means to verify the scarcity, provenance and ownership of these assets. They can also represent physical assets, such as sports memorabilia and luxury goods. Today they are primarily used for art, collectibles and digital assets inside games. Ultimately, they can be used as identities, to represent intellectual property and express ownership of many other kinds of virtual goods. NFTs have exploded in popularity. OpenSea, one single NFT site, recorded over US$3.4 billion in transaction volume in a single month in August 2021.
See: WEF Insight Report: Digital Assets, Distributed Ledger Technology, and the Future of Capital Markets
Stablecoins: Stablecoins are cryptoassets — such as USDT, USDC, DAI and UST — with stable value pegged typically to the U.S. dollar. Now with a total market value that exceeds US$130 billion, stablecoins use different methods to stabilize their value. Centralized stablecoins are backed by deposits of cash and equivalents inside financial institutions like banks. Decentralized stablecoins are typically collateralized by cryptoassets held in smart contracts.
Governance tokens: Governance tokens such as Uniswap’s UNI, Aave’s AAVE, Compound’s COMP and Yearn Finance’s YFI give holders say in the governance, specifically the allocation of resources from a common wallet of decentralized autonomous organizations (DAOs) and decentralized applications, or dApps. As dApps take in more assets and users, their governance tokens often appreciate as the economic value they control increases, and their fees increase. For example, the value of UNI, native token to the Uniswap decentralized exchange, is over US$11 billion.
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