Just where do we stand in the DeFi universe? Recognising that we are currently amidst a ‘crypto winter’, will this eventually give way to a stablecoin spring? Looking beyond the crypto craze, the application of some aspects of distributed ledger technology and tokenisation has the potential to yield greater efficiencies within commercial and retail banking, and, importantly, for investment in private markets. In the case of the latter, such innovations—standing at the intersection of technology, financial services, and real assets—might herald opportunities for a democratisation of investing in private markets.

Crucially, the viability and value of such innovations are pending the advent of widespread CBDCs, as investors and market participants require trust in the financial system, which is often predicated upon a fiat currency. As we shall explore, the premium placed on trust in the monetary system means that some of the more fruitful commercial opportunities for companies, asset managers, and investors might actually abound from the very jurisdictions in which central banks have successfully launched their own CBDCs. Brazil and India are notable examples here, as both countries have leap-frogged ahead of some other advanced economies in fostering sovereign-backed digital currencies. Additionally, jurisdictions in which central banks have created regulatory sandboxes, such as Singapore, have also been a propitious testing ground for fintech players writ large, and have also magnetised US and Japanese banks (amongst others) to explore the use of blockchain technology in cross-border transactions across Asian markets.

Looking to commercial benefits, the faster transaction times resulting from such experiments have the potential to greatly reduce the cost of trade finance—a boon to cross-border corporations and financial institutions. Singapore’s hosting of a digital finance ecosystem—involving diverse stakeholders to pilot innovation—represents a fusion of industry and regulation that constitutes a role model for other countries. And, with an eye on retail transactions and the potential for enhanced financial inclusion, new opportunities might abound within private markets. Pending the widespread adoption of CDBCs (and the corollary trust that the central bank can instil in digital currencies), the marriage of finance and technology might open up new vistas for home ownership, for smaller investors to access real estate investing, and for access to credit for entrepreneurs and for small businesses, which often make up the backbone of the employment base in many advanced and emerging economies alike.

The paper can be accessed by clicking here.

This paper has been authored by Alexis A. Crow.