The emergence of the internet of value and blockchain as a rail in financial services

Our paper explores the emergence blockchain technology and its implications for the world of financial services. We have witnessed in recent years the emergence of a Decentralized Financial (“DeFi”) system under which all the artefacts of our traditional financial system – including currencies, lending products, insurance, to name a few – are being replicated. A resulting mirror DeFi financial stack has emerged with the ability to fulfill all the functions of our traditional financial system, without relying on the traditional system of intermediaries that are usually required to make our financial system function.

The emergence of blockchain technology and what it means within the broader history of money

We explore the history of money and the successive innovations that occurred over millennia to lead us to our current monetary model. The emergence of blockchain technology represents an opportunity to catalyze yet another evolution in our monetary system: Blockchain technology – and the accompanying cryptocurrencies – operate on a permissionless and immutable paradigm which eliminates the need for governance by traditional centralised authorities (e.g., Central Banks, commercial banks). Combined with algorithms (SmartContracts), Blockchain technology also affords entirely new benefits to what we traditionally consider to be “money”, such as allowing it to be programmable. This feature allows money to not only act as a medium of exchange, but also allows it to embed, within it, the rules that dictate how it is intended to be transacted

We investigate how our financial system has evolved over time and how blockchain technology can change the structure of financial system

The latest evolution of the financial stack has been the emergence of an entirely parallel paradigm based on blockchain. This latest version of the stack not only disrupts the interface, application, and platform layers, but the very infrastructure layer too. By leveraging entirely newer technology at the most fundamental layer of the stack, DeFi allows entirely new possibilities for the superimposed layers on the stack. For instance, while prior iterations of the stack required artefacts like ATMs and branches to distribute centralised services, DeFi has no need for those as the system is inherently distributed by design. This inherently distributed nature also translates into more direct relationships, removing the series of intermediaries that have traditionally existed in the stack. As a result, this new stack provides fewer opportunities for friction, lower need for trust, and ultimately lower cost of transaction.

Through this paper we sought to provide readers with a view on how our Financial system became what it is, the foundational challenges it has grappled with for decades, as well as how blockchain technology works and its implications for actors across the Financial Services landscape. Through this process, we have attempted to synthesise the latest knowledge on the ever-evolving subject of blockchain from the vast range of thinkers and technologists that are exploring the space

An uncertain pace of change

While there is scope for blockchain technology to drive important changes in the world of finance, the exact form of that change still remains uncertain. On the one hand, we see the technology evolving at blistering speed, with new applications and use cases of blockchain technology constantly emerging. On the other, we have a still-uncertain regulatory landscape within which these changes are happening, making the line between theory and practice quite blurry.