Experts Predict DeFi Will Eventually Eclipse Traditional Banking


As professional investors place their faith in the digital currency market, a significant number have ventured into Bitcoin investments. However, it is the realm of Ethereum and decentralized finance (DeFi) that is capturing equal if not more interest.

Cointelegraph engaged with several banking leaders and executives to get their insights on the burgeoning blockchain domain and the adjustments legacy financial entities are making.

Thailand’s most established bank, Siam Commercial Bank, is diving into DeFi in pursuit of navigating the anticipated upheavals within the realm of financial transactions.

The SCB has expressed an eagerness to dedicate resources to examining the blockchain and DeFi sectors.

DeFi, or decentralized finance, is a system of finance based on blockchain that eliminates the need for conventional financial intermediaries like banks and exchanges, by leveraging smart contracts, predominantly on the Ethereum blockchain. Thai regulators, however, are championing a hybrid version of DeFi that marries the regulatory and efficiency standards of classic finance with the secure, cost-efficient features of decentralized protocols.

Siam Commercial Bank’s digital asset ambition was initiated by its investment branch, 10X, in February, with a foundational $50 million, which has since swelled to an impressive $110 million. This DeFi-centric fund now constitutes nearly half of SCB 10X’s comprehensive $220 million venture portfolio.

Mukaya ‘Tai’ Panich, the Chief Venture and Investment Officer at SCB 10X, in an interview with Cointelegraph, remarked, “We took notice of the blockchain space and became fascinated by DeFi.”

Panich highlighted SCB’s readiness to embrace the shift from established financial systems to DeFi innovations. “DeFi protocols can operate fully autonomously,” he noted, emphasizing that human input would be limited to the modification of smart contract code. Panich praised how smart contracts remove intermediaries, enabling a seamless exchange between the lending and borrowing parties. Nonetheless, he cautioned that banks should be proactive in preparing for this inevitable transformation:

Our decision to invest in DeFi and integrate ourselves within the DeFi protocol ecosystem stems from our desire to understand and harness DeFi, considering its significant potential to reshape the finance industry.”

“SCB 10X has actively engaged and forged multiple cooperative ties within Asia’s blockchain community and globally, partnering with entities such as Ripple, BlockFi, Sygnum, Alpha Finance Lab, Anchorage, Anchor Protocol (from the Terra ecosystem), Axelar, and Ape Board, among others,” Panich continued.

John Whelan, the Blockchain Lab Director at Banco Santander in Madrid, vouches for a governed DeFi ecosystem. His vision is that of a proprietary secondary network for financial asset transactions, layered atop public blockchains, becoming a reality in due course.

Whelan perceives the primary allure of blockchain for traditional banks as eradication of intermediaries in transactions, asserting that DeFi tech will inevitably be adopted throughout their internal processes.

Panich conveyed a related notion for the SCB: “It’s my conviction that future landscapes will likely see conventional financial entities allying with DeFi ventures. I foresee a future where there is a fluid merging of traditional and decentralized finance.”

He mentioned that existing banks and financial organizations possess the customer service acumen to offer pioneering fintech solutions to end consumers.

Similarly, Rachid Ajaja, CEO of AllianceBlock, likens the current blockchain sphere to the genesis of fintech enterprises that provided services through APIs interfacing with banks. “As DeFi and financial institutions converge, we’ll witness the same evolution, gradually leading to a transformation of legacy systems,” Ajaja communicated to Cointelegraph, adding:

“Looking ahead, I am utterly convinced that DeFi is set to completely overturn the worldwide financial framework. It replicates traditional financial operations at reduced costs and with lesser dependency on intermediaries, engendering new prospects and diverse revenue channels. It’s just a matter of when.”

Craig Russo, the Director of Innovation at PolyientX, which specializes in NFT vaults and marketplaces, told Cointelegraph that financial institutions will likely gravitate towards adopting open-access protocols while exploring DeFi tech.

“One of the primary aims of the DeFi movement is to refurbish the existing financial model to more accurately reflect incentive structures, potentially at odds with some institutional agendas while paving the path for a new generational wave of fintech creativity,” Russo concluded.

In a related development, the World Economic Forum issued in June a comprehensive policy guide directed at equitable and effective DeFi governance. The intent is to ensure that emergent businesses are not disadvantaged by overly stringent regulations.

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