The chapter provides a comprehensive overview of the evolving landscape of digital assets, setting the stage for a deeper exploration of their impact on the financial industry. This chapter begins by defining digital assets, encompassing cryptocurrencies like Bitcoin and Ethereum, tokenized securities, and non-fungible tokens (NFTs). It delves into the foundational technologies underpinning these assets, such as blockchain and distributed ledger technology, highlighting their role in ensuring transparency, security, and decentralization. The chapter also examines the historical context and evolution of digital assets, tracing their journey from niche innovations to mainstream financial instruments. Key concepts such as decentralization, tokenization, and smart contracts are introduced, providing readers with a solid understanding of the mechanisms driving the digital asset ecosystem.
Tarun Chitra, Theo Diamandis, Nathan Sheng, Luke Sterle · 5 authors
Decentralized perpetuals protocols have collectively reached billions of dollars of daily trading volume, yet are still not serious competitors on the basis of trading volume with centralized venues such as Binance. One of the main reasons for this is the high cost of capital for market makers and sophisticated traders in decentralized settings. Recently, numerous decentralized finance protocols have been used to improve borrowing costs for perpetual futures traders. We formalize this class of mechanisms utilized by protocols such as Jupiter, Hyperliquid, and GMX, which we term~\emph{Perpetual Demand Lending Pools} (PDLPs). We then formalize a general target weight mechanism that generalizes what GMX and Jupiter are using in practice. We explicitly describe pool arbitrage and expected payoffs for arbitrageurs and liquidity providers within these mechanisms. Using this framework, we show that under general conditions, PDLPs are easy to delta hedge, partially explaining the proliferation of live hedged PDLP strategies. Our results suggest directions to improve capital efficiency in PDLPs via dynamic parametrization.
Francesco Maria De Collibus, Carlo Campajola, Claudio J. Tessone
Abstract The transfer velocity of money is a macroeconomic quantity that measures the frequency of exchanges in an economy. For cryptoassets it can be exactly measured adopting a new approach, MicroVelocity. In this study we apply the framework to Ether, the native cryptocurrency of the Ethereum blockchain, to investigate velocity and its top contributors and how they can be characterised in the Ethereum ecosystem. While the inequalities and heterogeneity in wealth are well known, we here find that the same inequalities occur as well for MicroVelocity distribution and that this inequality is not explained just by wealth, but rather by the behaviour and economic activity of each individual agent.
Rafael Belchior, Thomas Hardjono, Alex Chiriac, Venkatraman Ranakrishna
It is time for the legacy financial infrastructure to seamlessly connect with modern, decentralized infrastructure. Although it is increasingly evident that decentralized infrastructure for finance (namely distributed ledgers) will coexist with and complement legacy infrastructure, it is also clear that such interoperability efforts carry new risks and concerns. In particular, managing the range of heterogeneous (and not well-established) infrastructure brings security, privacy, and regulatory issues. The first step to overcome some of these challenges is to recognize that in many deployment instances using distributed ledgers, the purpose of the ledger is to share resources among the community members. The second step after recognizing that borders exist is to understand that interoperability across systems can be best achieved through the use of standardized service interfaces (or application programming interfaces (API)). In this paper we use the term ledger gateways (or simply gateways) to denote the computer and software systems that implement the standardized service interfaces into a distributed ledger. The main purpose of a gateway is to communicate with other peer gateways that implement the same standardized service interface. Among others, peer gateways perform the transfer of data and value across borders (legal or national borders). Gateways also become a mechanism to manage a permissioned environment, where abiding by laws and regulations is crucial for business compliance (e.g., EU General Data Protection Regulations (GDPR), EU MiCa regulation on digital assets, FAFT Recommendation 15, ISO 27001.
David Cisar, Benjamin Schellinger, Jens-Christian Stoetzer, Nils Urbach · 7 authors
Abstract Corporate bonds are an attractive option for corporate financing. However, current bond markets face many challenges and inefficiencies, resulting in high transaction costs (TAC). In recent years, technological advancements like blockchain technology have enabled the possibility of reducing TAC in bond markets. Even though practice experiments with such solutions, academic literature lacks generic design knowledge under the TAC lens to design blockchain-based bonds. Thus, our research follows the design science research (DSR) paradigm to design and develop a bond prototype using the Ethereum blockchain protocol. Our results highlight the capability of blockchain-based bond markets to reduce TAC in the three dimensions of asset specificity, uncertainty, and transaction frequency. Further, our research provides design principles to contribute to both practice and the academic discourse on developing blockchain-based bond markets with reduced TAC.
V. R. Dhanya, Rivika Richard D'silva, David Joseph
Decentralized Finance (DeFi) is an emerging force transforming the global financial landscape by leveraging blockchain technology to eradicate the middlemen and assist peer-to-peer financial transactions. However, a decentralized and pseudonymous nature brings a big challenge in its regulation and compliance, especially in Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, market misconduct and adaptation, new cryptocurrency innovations, and safety and security issues. This paper comparatively analyses the two regulatory frameworks, compliance mechanisms, technical adaptations, and measures of cybersecurity regulating DeFi in India and the United States. By examining the salient regulatory challenges and compliance strategies in both jurisdictions, this study aims to provide insights that help foster a balanced regulatory environment that promotes innovation without undermining financial stability or consumer protection.
This study delved into the complex world of cryptocurrencies, analyzing their behavior, profitability, and volatility. Through a thorough and meticulous analysis of the 2021 – 2023 period, the volatile nature of these digital assets was revealed, where profits could be suddenly affected by external events. Bitcoin, two of the cryptocurrencies with the largest presence in the market, were the subject of a thorough analysis using sound statistical methodologies. Descriptive statistics were employed to characterize the overall behavior of cryptocurrencies, including measures of central tendency, dispersion, and distribution. Additionally, normality and stationarity tests were used to choose the best variant of the GARCH model, which was EGARCH, to estimate conditional volatility, future volatility and price profitability, allowing to identify patterns and dynamics in their variability. The results of the study revealed that cryptocurrencies, while presenting attractive potential returns, also carry a high degree of volatility. However, thanks to the in-depth analysis of the behavior of these assets we can identify opportune moments to make purchases, sales or strategic investments. The main goal of this study is to provide investors with the information needed to make strategic and informed decisions about their cryptocurrency investment
This study examines the ongoing debate between Decentralized Finance (DeFi) and Centralized Finance (CeFi), analysing their unique advantages and challenges within the rapidly evolving financial landscape. The objective of this research is to argue for the convergence of DeFi and CeFi to create an innovative and secure financial ecosystem that balances accessibility with security, using Kazakhstan as a case study. The study employs comparative analysis and case-study methodology to explore Kazakhstan’s regulatory approach to digital assets. The focus is on understanding how licensing, anti-money laundering (AML) protocols, and consumer protection measures can support the integration of DeFi and CeFi. Primary data includes an analysis of Kazakhstan’s regulatory framework for digital assets, statistical data on AML implementation, and levels of consumer protection within the country. Findings indicate that a hybrid regulatory model effectively bridges the operational differences between DeFi and CeFi, fostering inclusivity and economic growth while safeguarding consumer interests. Kazakhstan’s regulatory focus on licensing and AML protocols illustrates that a balanced regulatory approach can accommodate both technological progress and necessary protections for financial participants. The study concludes that a convergence of DeFi and CeFi through a hybrid regulatory model can lay the foundation for a sustainable digital financial environment that is accessible, innovative, and secure. Future studies are encouraged to explore the role of emerging technologies, such as quantum computing, and examine the socio-economic impacts of DeFiCeFi integration on financial inclusivity for underserved populations.
Digital currencies like Bitcoin and Ethereum are reshaping the financial landscape by challenging traditional banking and commerce. These technologies hold significant potential to enhance financial inclusion by providing access to underserved populations and streamlining cross-border payments, making transactions faster and more cost-effective. They also empower decentralized finance (DeFi), enabling innovative financial services without intermediaries. Blockchain, the foundation of digital currencies, facilitates secure, decentralized, and programmable systems, supporting key innovations like asset tokenization and Central Bank Digital Currencies (CBDCs). These advancements bridge the gap between digital and traditional financial systems, promoting efficiency and accessibility. Despite their promise, digital currencies face challenges, including cybersecurity threats, market volatility, and fragmented regulatory frameworks. Case studies on CBDCs and private-sector blockchain initiatives demonstrate viable integration pathways and underline the need for robust governance. By implementing balanced policies, stakeholders can harness the benefits of digital currencies while mitigating associated risks. These measures will be crucial to fostering a stable, inclusive, and innovative financial ecosystem that addresses global economic disparities and drives sustainable growth.
Over the past decade, digitalization, which has become a key driver of innovation in the financial industry, has led to the development of new products and financial services. The services and opportunities provided in the field of decentralized finance have similar characteristics to traditional financial services. The lack of sufficient experience in the functioning of the decentralized finance sphere determines the relevance of the study of the content and problems of the development of this format of financial organization. The object of study is the relations arising in the process of providing financial services in traditional and decentralized finance. The subject of the study is the impact of decentralized finance on the activities of traditional financial intermediaries. The purpose of the study is to determine the aspects of the impact of decentralized finance on the activities of traditional financial intermediaries. The objectives are to study the theory of trust in relation to decentralized finance, identify problems of their development, assess the challenges and prospects for the impact of decentralized finance on the activities of traditional financial intermediaries. The authors use general scientific and special methods, including system, comparative analysis, generalization, scientific abstraction. The scientific novelty of the study lies in a comprehensive assessment of the impact of decentralized finance on the activities of traditional financial intermediaries through the prism of the capabilities of the decentralized finance system at the current stage of financial market development. The authors conducted a study of the theory of trust in relation to decentralized finance, and also proposed forms of ensuring trust in financial services provided in the traditional (TradFi) and decentralized financial systems (DeFi). To assess the challenges and prospects of decentralized finance and their impact on the activities of traditional financial intermediaries, a PEST analysis was conducted, identifying groups of political, economic, technological and socio-cultural factors of influence. It is concluded that the influence of the decentralized finance sphere on the activities of traditional financial intermediaries will expand due to the increase in the market capitalization of DeFi and the spread of systemic risks characteristic of TradFi. Focus on minimizing risks should facilitate the use of DeFi services by traditional financial intermediaries in the context of creating and developing innovative projects. The conducted research can be useful both for users of traditional and decentralized finance services and for regulatory and supervisory authorities.
The rise of digital currencies has introduced significant challenges and opportunities for the traditional banking sector. This study investigates how cryptocurrency adoption influences the profitability and stability of banks in China, with a focus on the moderating role of government regulation. It examines the effects of both decentralized cryptocurrencies (e.g., Bitcoin, Ethereum) and the Digital Yuan (e-CNY), China's Central Bank Digital Currency (CBDC), on key banking functions. Using a quantitative approach, data was collected through structured surveys and financial records, and analyzed using descriptive statistics, correlation analysis, multiple regression, and moderation techniques. The results show that while decentralized cryptocurrency adoption negatively affects bank profitability, CBDC usage strengthens financial stability by aligning with regulatory structures. Moreover, strong regulatory policies appear to buffer the negative financial effects of crypto adoption. These findings offer practical insights for banking institutions adapting to digital finance, and contribute to academic understanding of how innovation and regulation intersect in transforming financial systems.
The rapid rise of FinTech innovations and digital banking has fundamentally altered the landscape of financial services, enabling unprecedented accessibility, efficiency, and customer-centric solutions. However, this digital transformation is increasingly entangled with escalating geopolitical tensions, which pose significant risks to global financial stability, cross-border payments, data sovereignty, and cyber-security. This study investigates how these geopolitical dynamics influence FinTech innovation and the security architecture of digital banks. Drawing on a mixed-method approach - combining case studies from major financial centres (e.g., EU, U.S., China), expert interviews, and quantitative risk modeling - we analyze the ways in which political rivalries, economic sanctions, and regulatory fragmentation drive both risk and innovation in the FinTech sector. We find that heightened geopolitical risk pressures banks to enhance their cyber-resilience, data governance, and regulatory compliance, while also accelerating the development of decentralized finance (DeFi), blockchain-based cross-border systems, and resilient infrastructure. Yet, these shifts are not uniform: smaller digital banks and fintech startups often lack the capacity to absorb geopolitical shocks, leading to a bifurcation in capability between well-capitalized incumbents and emerging players. Based on our findings, we propose a policy framework that balances innovation with systemic security, including multilateral cyber-risk intelligence sharing, harmonized regulatory sandboxes, and strategies for “geo-resilient” FinTech architecture. Our study contributes to a deeper understanding of how geopolitical risk shapes the future of digital banking and offers actionable insights for financial institutions and regulators seeking to secure the next generation of FinTech.
Guzel S. Rakhimova, Anastasia A. Baboshkina, Ernest R. Usmanov
The expansion of digital infrastructure in the financial sector is transforming traditional lending mechanisms, creating new channels for access to borrowed capital and reshaping the interaction between borrowers and lenders. The article analyzes the impact of digital financial instruments on credit accessibility parameters, including reduced transaction costs, accelerated creditworthiness assessments, and individualized financing conditions. It describes key technological solutions shaping new lending models: digital scoring, credit marketplaces, automated lending platforms, open banking systems, and distributed ledger technologies. The study also explores institutional and infrastructure limitations of digitalization and identifies risks associated with algorithmic borrower assessments. Special attention is given to the specifics of digital lending in the SME and household segments in Russia.