For those paying attention, we are watching the emergence of a new era for the global financial system. Just as the power of the Internet slowly emerged in the 1990s and allowed the world to connect and interact in ways unimaginable before its existence, we are now witnessing the emergence of the ‘Internet of Money’, a phenomenon that will provide a network of roads for finance.
Decentralised finance, or DeFi, has significant potential to disrupt the financial system at an institutional investment level.
I feel privileged to be a witness to the institutional adoption of virtual currency. Blockchain evangelists have talked about this moment for many years, and now we see it happening. Even more exciting is that I can be part of shaping this future.
Almost every day, leaders in crypto adoption, with a deep understanding of the market, try to sell the idea of a new financial system to incumbents and novices entering the crypto market. It is a complex concept and there is a need to translate information into small chunks to help large financial institutions digest and understand.
Decentralised data exchange platform
There is an increasing focus on tokenisation, and we see the emergence of projects like Chainlink, a decentralised network of oracles that provide real-world data to blockchain networks. A staking mechanism is used to guarantee the accuracy of the data they supply.
The ultimate vision, however, is to have a data exchange platform that is decentralised and open-source and not owned by any one entity. The sharing of data can be monetised through non-fungible tokens (NFTs) which also act as the public-private key that can unlock the shared data. To be clear, a NFT token is used to uniquely identify the data through a simple hashing algorithm so the shared data will not be public. It's perfectly conceivable that this security NFT token could in itself be tradable as a right to access data and as a token of ownership.
In a platform like this, I envision multiple stakeholders such as Data Custodians, Data Stewards, Identity Holders and the Data-sharing Platform. The guiding principle is that the Identity Holders have the sovereign right to allow or deny access to the data while getting paid for the use of that data. The “all boats must rise” principle applies, where Data Custodians, Data Stewards and the operators of the network, as well as the Identity Holders, get their share of the valuable data that Identity Holders own but custodians can share. Such a platform aims to legitimize the trading of personal information which could include investment in institutional funds, transaction history and other key financial and personal data. This legitimisation can power a more sophisticated financial system with privacy at its core.
Integration of old and new
There is certainly value in the current financial system constructs, but I foresee a time when the blockchains and products currently in development can be leveraged by the existing financial rails and ultimately become the backbone of both the old and the new. A key milestone in this journey will be integrating the traditional systems that drive the capital markets with the crypto world. Integration will be a necessary step in the maturity ladder if institutions are to adopt crypto and ultimately help to build the future financial system, where blockchains become the ultimate custodian of the data.
In a future where the blockchain is the trading platform and the record of custodianship, it will not be necessary for any third party to calculate and read the transactions performed on a blockchain for a specific crypto wallet address and the real-world assets that a NFT represents. Yes, I am sure that there is a market for sellable products for the safekeeping of cryptographic private keys, but in essence the value stored in the network is linked to a wallet and can be read by any system that can call a simple blockchain API.
The reality is that investors are not only interested in investing in Bitcoin but in the whole array of crypto products and other asset classes, some of which may have not even been developed yet. With a data-sharing platform as described here, a new provider would register their available data and authorisation channels and consumers can scan these and use what they need.
To bring it back to the financial institution and incumbent’s business model - set data exchange platforms can create private channels of communication where multiple data custodians can interact with multiple data consumers.
As excited as I am to see how the adoption of crypto in the capital markets unfolds over the coming months and years, my hope is that there is synergy between the traditional and the new and that we can leverage the best of both worlds.