Andreas Park PRO
Professor of Finance at UofT
Introduction to DeFI and Blockchain Part 2
Instructors: Andreas Park & Zissis Poulos
Rotman – MBA
What can it for finance, what are problems and obstacles?
Evolution
- blockchain 1.0
- first solution to double spending
- clunky, slow, expensive
- huge following and computing power
vs
- blockchain 2.0
- smart contract platform
- highly flexible
- foundation for many private initiatives
"Let me just say how impressed I am with Ethereum...If Bitcoin is email ––a one-trick pony, so to speak, but obviously revolutionary–– Ethereum goes far beyond that; it's more like the Internet...The whole idea of DeFi really is, number one, it’s obviously revolutionary, and I think at the end of the day could lead to a massive disintermediation of the financial system and the traditional players."
Heath P. Tarbert, CFTC Chairman, October 2020
cryptocurrency =
internal payment mechanism to pay for operation of a blockchain
With Blockchain: single ledger for money and securities
0xA69958C146C18C1A015FDFdC85DF20Ee1BB312Bc
0x91C44E74EbF75bAA81A45dC589443194d2EBa84B
0xA65D00Eda4eEB020754C18e021b1bF4E66C9Ed90
Usage of blockchain in financial industry
Areas of applications
moving value (remittances)
digital money: real-time settlement, reduced reserves
tokenization of assets
automization of contract payments
securitization
systems and infrastructure reorganization
digital identity
new forms of financial contracts, assets, and forms of financing
What Changes in Business Models can Blockchain Technology bring?
What does blockchain do?
peer to peer value transfers
self-powered platforms
contract execution
disintermediation
Who do you dis-intermediate, and then who is your customer?
issuer
investor
broker-dealer
The Business challenge of dis-intermediation
investment advisor
Private Sector Solutions
Private vs. public
some key questions
Who gets to update?
Can a higher body prevent
transactions?
Can the past be altered?
consensus
immutability
censorship resistence
Public Blockchains provide
Main private blockchain systems
Features of Private vs. public blockchains
open to anyone
no one can be excluded
past cannot be changed
Public Blockchains
private Blockchains
high visibility of transactions
open-access eco-system
slow governance
privacy only at a cost
joint control and governance
straightforward KYC and AML
tech support
transaction secrecy simpler
rely on corporate development
compliance with law (reversion)
can keep competition out
Enter BigTech
cellphone data from 2018 (NewZoo), inflation from 2020 (World Population Review)
Evolution
DIEM = "new financial infrastructure"
Why does BigTech enter the finance game?
They have ZERO interest in becoming a financial institution/bank
\(\rightarrow\) no expertise
\(\rightarrow\) competitive market
\(\rightarrow\) one of the most regulated business environments
My take
They are trying to deal with frictions that impede their business
They aim to collect data which will vastly improve their business
Lay the groundwork for the next step of the digital evolution: the "Metaverse"
Key Challenges for the blockchain Community for 2019
Technology
Legal/Regulation
Economic functions
What is the right governance structure for systems?
How should we design tokens as contracts?
How do platform payment means interact with outside world
How much do we have to pay operators to maintain the chain?
Key Economic Questions for Blockchain Design
Key Technology Questions for Blockchain Design
interoperability
cybersecurity and privacy
functionality
scalability
smart contract features and verification
space constraints
Solution projects to Key Technology Questions
interoperability
scalability
space constraints:
Does the law have to change to accommodate new tech? If so, how? What's dated, what's not?
Key Legal Questions for Blockchain Design
Legal setup of a platform: what rules can, should, and must a platform establish? What regulations are necessary?
How can token design and the law be married?
Questions for the future
What is the economic impact of "tokenizing everything"?
How will it affect investments and investment banking?
Which business opportunities will it enable?
What do tokens and "alternative money" mean for payments?
quick comparison
FinTech vs. Defi
FinTech
DeFi
- more user-friendly UX
- more customer-oriented
- less squeezing/rent-extraction
- more competive services
- more innovative services
- currently: horribly user-unfriendly
- "blowing up the banks"
- fundamental re-thinking of financial services
- lots of scams, cowboy-attitude towards laws
innovation vs. salesmanship
main focus
Conclusion and final thoughts
blockchain is a transformative technology, but won't be used in practice overnight
many conceptual and technological challenges remain, but there are already various areas of application
legal, regulatory, and competitive changes are needed and then the opportunities are endless ...
it will open up the banking world further, foster international competition, and change how we pay and exchange value
My view: business development will happen in private/semi-public space; strong increase in recent activity; no more testing but re-engineering of processes.
@financeUTM
andreas.park@rotman.utoronto.ca
slides.com/ap248
sites.google.com/site/parkandreas/
youtube.com/user/andreaspark2812/
DeFi Intro Part 2
By Andreas Park
DeFi Intro Part 2
This is the slide deck that I use for a quick introduction to the Decentralized Finance class.
