Crafting Decentralized Finance (DeFi) based Capital Market infrastructure
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The document discusses the development of next-generation decentralized finance (DeFi) infrastructure aimed at modernizing capital markets through the use of blockchain technology. It highlights existing challenges such as slow settlement times and restrictive participation, while proposing that DeFi can democratize investment opportunities, improve settlement speeds, and reduce costs. The integration of open protocols and decentralized applications is emphasized as key to transforming the financial landscape into a more inclusive and efficient system.
Crafting Decentralized Finance (DeFi) based Capital Market infrastructure
- 1. Floyd DCosta Crafting integrated next-gen Decentralized Finance (DeFi) based Capital Markets infrastructure Faster, smarter, liquid, and inclusive Powered by open protocols and capital market DApps Built atop smart-contract enabled Blockchain networks October 2021
- 2. 2 Aside from the recurrent challenges of heightened regulations, security demands, and lengthy compliance and onboarding procedures, capital markets firms must also battle internal apprehensions about emerging technology adoption and push backs against shifts to more agile digital business models The Challenge: Despite digitization and progress in the last decade, Capital Markets continue to be plagued by a set of long-standing challenges Slow T+2 markets, even today Costly Too many intermediaries Restrictive Participation based on archaic norms Illiquid Limited liquidity across asset classes
- 3. 3 The Trigger: Blockchain technology has gone mainstream and now Decentralized Finance (DeFi) offers a next-generation platform to transform Capital Markets Among others, DeFi based management and trading of tokenized securities will provide for democratization of investment opportunities, faster improved settlement times, lower costs, and increased access to capital - all, with a 24/7/365 market Transparent Programmable Decentralize d Censorship Resistant Trustless Permissionle ss Key tenets of DeFi
- 4. 4 The Technology: DeFi uses open protocols and decentralized applications to enforce agreements, facilitate trades and immutably record transactions on the Blockchain Blockchain Network Settlement Layer Asset Layer Tokens ERC - 21 NFT ERC - 721 Wrapped Assets Stablecoins Tokenized Real World Assets … Native Blockchain Protocol Asset DApp Layer Borrowing and Lending Payments Prediction Markets Derivatives & Synthetics Registries … Decentralize d Exchanges Insurance Aggregation Layer Non Custodial Wallets Yield Aggregators … Multi Protocol Interfaces Tools and Non- User Facing Protocols Price Oracles Asset Wrapper Services Tokenization Services Relayer Networks KYC and Identity …. The DeFi Technology Stack Image: Adapted from the original by Fabian Schär, BCG
- 5. 5 The Opportunity: According to the World Economic Forum, up to 10% of global GDP is expected to be stored and transacted through distributed ledger technology by 2027 Source: Finoa, World Economic Forum Projected tokenized market volume (in $trn by asset class)
- 6. 6 Apart from standard equity and debt offerings, the infrastructure will also facilitate the setup, management, and transactions of novel tokenized investment funds, including alternative assets - Private Equity, Hedge Funds, Venture Capital, REITs, and more The Solution: Next-gen Decentralized Finance based Capital Markets infrastructure; powered by smart contracts on a Blockchain Gen-3Blockchain networks … with nodesoperated by platformoperators aswell asvarious market participants DigitalIdentity and KYC … enablingindividual andorganizationsto comply andseamlessly participatein markets OpenProtocolsand CapitalMarketDApps … to helpcreate,structure, manage, andtrade varioustokenizedasset classeson-chain Cybersecurity and Compliance … with ZeroTrust securityandintegration intoenterprisetools forregulatorycompliance
- 7. 7 Collaboration among the various stakeholders will be key to craft, develop, and deliver truly integrated and decentralized Capital Markets infrastructure The Architecture: Underpinned by open protocols and decentralized applications, the system will deliver the network and applications required to operate capital markets Blockchain Network Aggregator / Brokers Integration External Systems Integration Network Smart Contract based Decentralized Finance Protocols Private Blockchain Network Structured Products Security & Compliance Issuance and Trading Services Enterprise Apps Regulator Reporting Oracle Services Multi-sig Wallet Accounts Ext. Services Multi Protocol Interface Investors Auditors Registry User Management Financial Network Banks Blockchain Network Asset Wrapper Services Relayer Networks Liquidity Pools Custodial Services Issuers
- 8. 8 Driving Adoption: A simple intuitive user interface should provide aggregated access to decentralized financial market applications along with native integration via open API’s Blockchain-based Digital Identity, multi-sig wallets and Zero Trust cybersecurity will ensure enterprise-grade security and compliance with regulations
- 9. 9 Liquid Increase access to global capital Faster T-instant settlement Lower Costs For parties involved Inclusive Democratize participation Peer-2- Peer With no middlemen All-new Vibrant secondary markets Smarter With smart contracts Always on 24/7 Capital Markets The Benefits: Decentralized Finance (DeFi) can transform the global financial infrastructure and lead Capital Markets into the post Covid-19 ‘Digital’ era Harnessing the potential of DeFi can help transform the archaic centralized global financial infrastructure into a more modern internet-based decentralized model based on open- source protocols, help liberate trillions of dollars worth of non-liquid assets and create all-new secondary markets - on the Blockchain
- 10. 10 It’s time to build next-generation decentralized financial markets infrastructure - faster, smarter, liquid, and inclusive Drop a line or reach me via any of the channels below: +65 96536243 @floyddcosta [email protected] Get in touch