Decentralized finance (DeFi) has a massive potential to transform traditional financial services. Data from Emergen Research recently found that the global DeFi platform market size is expected to reach $ 507 billion by 2028. In addition, the total value locked within DeFi currently surpasses $ 75 billion, showing rapid growth compared to previous months this year.
However, the potential of DeFi may not yet be realized by business leaders unfamiliar with the blockchain ecosystem. This notion is highlighted in Alex Tapscott’s recent book, Digital Asset Revolution. Tapscott, co-founder of the Blockchain Research Institute and managing director at Ninepoint Digital Asset Group, told Cointelegraph that he believes digital assets will be a major building block for a new internet, along with a financial industry that will change business models and markets. However, Tapscott noted that so far very few resources have been available to help business leaders understand the importance of digital assets. He said:
“Words like unbreakable tokens, central bank digital coins and stable coins are foreign to people who are not involved in the world of crypto and blockchain. Our goal at the Blockchain Research Institute is to illuminate the potential behind different digital assets, explaining what these is and why people care about them in a language that is easy to understand. “
How DeFi relates to the financial industry
To help readers understand the concepts behind DeFi, the first chapter of Digital Asset Revolution gives a broad overview of how decentralized finance could reinvent financial services. Tapscott begins briefly by summarizing how DeFi relates to nine specific functions of the financial industry: value storage, movable value, loan value, financing and investing, stock exchange, value insurance and risk management, value analysis, accounting and value review. and authentication of identity. .
For example, when it comes to storing value, Tapscott mentions that individuals and institutions can use unsecured wallets like MakerDAO to act as their own banks. In terms of funding and investment, Tapscott notes that aggregators like Yearn.finance and Rariable could possibly be intermediary investment advisors and robo-advisors. Considering these different use cases, Tapscott stresses that the lines between traditional finance and DeFi will eventually blur as adoption rates grow. However, this will most likely not be the case in the immediate future, as skepticism around DeFi still remains.
Chapter one also deals with how a new ecosystem of digital assets emerges from the growth of DeFi. This is an important aspect of the book, as co-author Don Tapscott told Cointelegraph that business leaders are still very confused about what crypto represents. To explain that, Digital Asset Revolution describes nine different digital currency classes, focusing on cryptocurrencies, protocol tokens, governance tokens, non-fungible tokens (NFTs), exchange tokens, securities tokens, stable currencies, natural assets, and central bank digital currencies (CBDCs).
Coverage of Digital Asset Revolution. Source: Blockchain Research Institute
While each of these assets is important, readers may tend to focus on the digital assets that are gaining momentum today. For example, the book presents a whole chapter on stable currencies, showing how these have the potential to transform legacy payment infrastructures like SWIFT.
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This seems to be the case with some stable currencies, such as the USD Circle Currency (USDC). USDC was recently adopted by Banking Circle, a European bank focused on cross-border payments. But some stable currencies are proving controversial. This was shown after the collapse of the algorithm stablecoin TerraUSD Classic (USTC) or Luna Classic (LUNC). As such, readers of Digital Asset Revolution should still do their own research when looking at different digital use cases, especially as the sector is constantly evolving.
CBDCs are another interesting topic mentioned throughout the book. Chapter four is devoted entirely to CBDCs and presents an edited transcript of a webinar hosted by the Blockchain Research Institute with J. Christopher Giancarlo, former chairman of the U.S. Futures Trading Commission and co-founder of the Digital Dollar Project.
In this chapter, Giancarlo explains what a “digital dollar” represents, noting that the concept is very different from stable currencies that are often tied to another currency. Giancarlo realizes that a digital dollar, also known as a CBDC, is an asset in itself. While some concerns remain around CBDCs, Giancarlo also details why privacy is important for a digital dollar to succeed:
“At the Digital Dollar Project, we believe that developing the jurisprudence around the U.S. government’s approach to trading activity using the sovereign currency, if done correctly, could be a feature of a digital dollar that could be higher than other global reserves. currencies. “
The chapter on NFTs may also arouse the interest of readers, given the uproar surrounding these digital assets. Alan Majer, founder of Good Robot – a company researching artificial intelligence, robotics, blockchain and the metaverson – contributed to the chapter on NFTs, noting that “NFTs have inspired digital notions of ownership.”
With this in mind, the author points out that business leaders need to start thinking creatively about tangible and intangible property rights. For example, Majer includes a diagram here that shows NFT use cases, one being for intellectual property. The diagram states that “NFTs may be able to grant licenses or titles not only of copyrighted works but also trademarks and patents as with 3D-printed design files.” Another interesting use case shown relates directly to DeFi, as NFTs have the potential to expand the range of assets to secure, customize, and gain additional value.
Digital assets aside, interoperability is discussed throughout the book’s two chapters. According to Tapscott, interoperability is important for business leaders to understand because this essentially allows different blockchain networks to communicate with each other.
“Smart contracting platforms need to work seamlessly seamlessly for DeFi and other new blockchain use cases to reach their full potential,” he writes. Tapscott then points out that smart contracting platforms like Cosmos and Polkadot have been developed to address this problem. Anthony Williams, co-founder and president of the Center for Digital Entrepreneurship and Economic Performance, delves deeper into this through the second chapter, explaining how Cosmos and Polkadot allow blockchain networks to deliver value in a safe and efficient manner.
Challenges of DeFi adoption
While Digital Asset Revolution provides an in-depth overview of how different digital assets associated with DeFi can affect traditional finance, Tapscott is also aware of the challenges associated with adoption. The author mentions these dilemmas at the end of the first chapter, noting that DeFi is still in its early days and requires growth.
For example, he explains that blockchain networks that run DeFi applications still require a lot of energy. While some DeFi applications are built on Ethereum, statistics show that Ethereum’s annual footprint in electricity consumption has grown during 2021, surpassing the consumption of countries like Colombia or the Czech Republic.
Tapscott also notes that governments may regulate DeFi, which could hinder growth. Additionally, Don Tapscott mentioned that DeFi may become larger than the billion-dollar end-technology sector, but this would require senior executives and managers like banks to understand the value of decentralized finance. “The challenge of course is that leaders of the old middle are usually the last to accept the new middle,” he said.
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All things considered, however, Tapscott concludes his overview in chapter one, suggesting that organizations that fail to implement DeFi aspects will be engulfed by “this hot new industry”. Tapscott added that publishing a book on DeFi during a bear market shows a valuable lesson. He said:
“We’re in crypto winter, which is actually the best time to explore ideas and be educated. Bull markets are for profit while bear markets are for learning.”
The opinions and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com.