Andreas Park PRO
Professor of Finance at UofT
Blockchain
In Finance
Presenter: Andreas Park
Date: April 7, 2021
Session: Digital Transformation in Higher Education through Blockchain
2021 AACSB ICAM
Agenda for Presentation
- Bitcoin \(\not=\) Blockchain
- The big picture: the technological transformation of financial infrastructure
- Why blockchain matters for finance & business education
- What business school leaders need to prepare for
The State of the Financial Industry and the Role of its Infrastructure
Costs in the traditional world of finance
cheap tech, high prices?
Source: Philippon (AER 2015) "Has the U.S. Finance Industry Become Less Efficient?"
\(\Rightarrow\) flat unit costs
Source: Philippon (AER 2015) "Has the U.S. Finance Industry Become Less Efficient?"
Have financial institutions not changed?
old days: silos
today: cloud computing
- So there have been changes in the financial industry.
- Q: Still, how come a high-cost, high-rent industry survives?
- My view: "restricted-access infrastructure"
Digital Disruption: it's not just "Silicon Valley"
Common theme in many industries: Digital Disruption
My point today: it's not "digital" per se, it's the opening/democratization of the underlying service delivery infrastructure
Mobile Payments in China
- 1.1B WeChat Pay users
- >90% market penetration
- does 80% of what a commercial bank does
- staff: <2,000 people
How does Blockchain Technology come into this?
Distributed Ledger/Blockchain Technology
- "joint, single system" "shared resource" "common infrastructure"
- Features:
- secure storage of information and transfer of value
- guaranteed execution of code
- Promise
- open platform
- global reach
- frictionless finance
Accounts = safekeeping of assets
Enable payments
Loans: personal (uncollateralized) and secured (mortgage, car loan, etc)
Investments (bespoke, robo, self-directed)
What does a retail bank blockchain do?
What does a retail bank do?
TOTAL FUNDS USED IN/DEDICATED DECENTRALIZED FINANCE APPLICATIONS
disclaimer: compared to existing markets this is still a tiny amount
Some Examples of DECENTRALIZED FINANCE APPLICATIONS
decentralized exchanges & token offerings
decentralized derivatives creation
decentralized lending
payments
decentralized asset management and fund creation
$9.2B
$7.7B
$5.7B
Figures are from DeFiPulse, April 5, 2021
$1.6B
$0.2B
$0.3B
$0.5B
$2.4B
$0.3B
$5.9B
$2.1B
$4.3B
$4.5B
Usage of blockchain in financial industry
Areas of applications
moving value (remittances)
digital money: real-time settlement, reduced reserves
tokenization of assets
securitization
automization of contract payments
systems and infrastructure reorganization
digital identity
new forms of financial contracts, assets, and forms of financing
What else is on the horizon?
Blockchain is a major theme in china's Public policy plans
disclaimer: compared to existing markets this is still a tiny amount
The most controversial entrant of them all ...
Partnerships
"new financial infrastructure"
Source: BIS Working Papers No 880 "Rise of the central bank digital currencies: drivers, approaches and technologies" by Raphael Auer, Giulio Cornelli and Jon Frost
Some central Banks aren't asleep at the wheel
Outlook and next steps
But we aren't there yet. A Timeline
Birth of an idea 2008/9
Bitcoin
2014/16
Ethereum
Babysteps &
Experiments
2017/18
ICO Bubble
2020/21
DeFi Boom
New financial infrastucture
2021/22
Diem
2023/25
CBDCs
The Big FI Consolidation
2026/28
the death of the retail bank as we know it
What BSchools have
done/should do
Have done:
ignore/rail that it's only for criminals
Should do
enable students to participate in the conversation and think of use of common infra-structure in finance
Should do
prepare for the transformation and enable development of new product ideas
Should do
this is back to business: who are your customers, how to reach them, \(\ldots\)
My predictions for the next 10 years
- automated contract logic & design
- managing shared knowledge & IP
- offering and monetizing commoditized financial services
- tech & economic audits of tokens, digital assets, and digital contracts
and how they matter to business school education
commercial banks will lose most of their payments
and fee income \(\ldots\)
\(\ldots\) causing massive shrinking of financial sector employment
(everything that is commoditizable will go)
banking services continue to be necessary
\(\to\) new players will emerge
blockchain tech will play an important role and BSchools need to adapt to teach pre-requiste knowledge
@financeUTM
andreas.park@rotman.utoronto.ca
slides.com/ap248
sites.google.com/site/parkandreas/
youtube.com/user/andreaspark2812/
Blockchain in Business Education
By Andreas Park
Blockchain in Business Education
Presentation slides for the AACSB's 2021 ICAM Conference
