What has been happening around Blockchain Technology and Cryptocurrencies this week? The most relevant local and international developments as well as appealing background reports in a pointed and compact way in retrospect in our weekly review.
Institutional interest in crypto assets is on the rise. This trend is highlighted by Morgan Stanley, one of the world's largest investment banks. They announced that they will offer their clients access to Bitcoin through three funds. The service is limited to wealthy clients for the time being. The financial institution considers the digital asset suitable for investors with an "aggressive risk tolerance." Investments will also be capped at 2.5% of clients' net assets. The decision shows that large traditional financial institutions are increasingly integrating digital assets into their services.
Tokenization is finding its way into the traditional financial system to an increasing extent. Tokenization is understood as the cryptographic mapping of stakes in digital and real assets on a blockchain. This leads to various benefits in terms of increased efficiency and transparency. While the basic principles of tokenization can be easily described, its concrete use cases are diverse and complex. Numerous financial institutions have already been gathering experience with blockchain applications for years and have been preparing for real-world implementation. While the "first mover phase" has been in full swing for some time, the period of the first imitators seems to be coming.
The decentralization of finance is marking the beginning of a a new era of democratization in finance and trading. Although the DeFi field is still in its early stages, it has enormous potential. Can decentralization actually also contribute to the improvement of the aging current financial system? The events surrounding GameStop (GME) exposed obvious limitations and conflicts of interest in the current financial infrastructure. Some valuable inspiration to improve the weaknesses uncovered can be found in the emerging decentralized finance system. For example, in the governance structure, transformability, incentivization, democratization, and 24/7 availability of applications. DeFi users have all the opportunities open to them, which in traditional financial systems are reserved for large financial institutions. Buying and selling crypto assets, lending and borrowing, and even participating in market making activities is possible in the new world. The fact that market participants act directly also creates a true, unbiased yield curve for cryptocurrencies. That said, the technical state of decentralized applications is currently far from being able to process order matching capacities of traditional trading venues. The free decentralized financial world is far from perfect, with risks lurking in many places and regulation lagging behind the rapidly growing field. Still, the best of both worlds, Traditional (TradFI) and Decentralized Finance (DeFI), could create a more durable and fair financial infrastructure. An in-depth dive into the current structure of the two worlds.
The rapid rise of DeFi was unexpected for many and reminds several market participants of the Initial Coin Offering (ICO) craze in 2017/18. The latter has universally had a rather negative taste, as many projects failed to deliver on their promises and there was also frequent fraud. However, a simple comparison between the two eras would fall short. While the DeFi industry is still in its early days, it has produced functional applications and products that are in demand by the market. Decentralized exchanges (DEXes) such as Uniswap are already challenging their centralized counterparts in terms of volume. Lending backed by digital collateral is also being actively used across multiple platforms and is a key pillar of the new ecosystem.
In addition: Crypto Valley pioneer Bitcoin Suisse has submitted an application for a Swiss banking license to the Swiss Financial Market Supervisory Authority (FINMA) as early as summer 2019. At the current stage, the regulator classifies the application as not approvable. The regulator has particular concerns in the area of money laundering prevention. In response, the Bitcoin Suisse Board of Directors has decided to withdraw the application for the time being.
Selected articles in the weekly review:
A major U.S. bank is entering the crypto world: Morgan Stanley will allow its clients to invest in three different Bitcoin funds.
Interest in tokenization has surged among established financial institutions but some challenges remain.
The GameStop debacle has generated a lot of attention in recent months. Some critics see the problem with centralized systems. Does decentralized finance actually provide an alternative?
The DeFi space is experiencing a rapid rise in growth and comparisons are already being drawn with the ICO boom in 2017/18. However, this view falls short.
Swiss crypto pioneer Bitcoin Suisse submitted an application for a banking license to the Swiss banking regulator FINMA as early as 2019. Now the firm is withdrawing the application due to concerns raised by the regulator.
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