Subject. The article presents a theoretical analysis of foundations for building a new financial market infrastructure based on distributed technologies. Objectives. The focus is on theoretical elaboration of the framework for a new model of financial market infrastructure on the basis of distributed technologies. Methods. The study draws on general scientific research methods through logical and comparative analysis. Results. We analyzed the main channels of digital transformation, noted the growing role of new intermediaries in the form of ‘aggregators’, ‘showcases’, and ‘marketplaces’, companies providing customer identification (onboarding, KYC) and remote risk management. The paper systematizes intermediaries in the infrastructure of decentralized finance. Based on the analysis of new business models of banks, we highlighted their key features and capabilities and stressed the growing need for transformational processes under strengthening sanctions pressure on the financial market of the Russian Federation. Conclusions. Transformation processes of financial intermediation models are driven by the high rate of progress in technological solutions and rapid digitalization of the financial services market. This enables to extract the synergy of financial and non-financial services by forming a new infrastructure. The provisions of this study may serve as a theoretical basis for applied research by financial market specialists.
The central position of banks in the payment system in the current hierarchical monetary system has been challenged first by the emergence of a large crypto-ecosystem following the Bitcoin invention, second by the entry of Big Techs who, relying on their vast network of users, wish to offer their own payment services and third, with the possible introduction of Central Banks Digital Currencies (CBDC). This chapter aims to discuss the consequences of those digital innovations on the changing role of banks in the payment industry. As we will show, those technological innovations re-actualizes some typical tensions between centralization and fractionation of money, as well as historical debates on the efficient monetary reform. We show that, more than cryptocurrencies, Big Techs seem to be able to contest the structure of payment systems, even though they show willingness to comply with the regulatory framework instead of strongly disrupting the payment system. Cryptocurrencies are more likely to be adopted in countries with very weak or even failed state. CBDC can be analyzed as a way to counter the rise of BigTechs and cryptocurrencies and thus keep the hierarchical banking system alive but a the cost of changing the banks' business model, strengthening their control and changing the way monetary policy is implemented. Although cryptocurrencies increase monetary competition and fractionation of payment systems in the same spirit as Hayek's proposals of denationalization of money, in contrast, depending on the design of CBDC, it could be a resurgence of the 100% money scheme or the Tobin's (1985) deposited currency proposal.
This paper investigates how blockchain technology may alter the defining mechanisms of residential real estate transactions in Sweden. It departs from the assumption that blockchain applications do not merely change complex socio-economic, organisational and governance arrangements of mature housing and mortgage markets. Rather, they may trigger resistance among incumbents in the current organisational model, which will drive incremental change. This analysis shows that housing transactions in Sweden are long and complex endeavours, underpinned by exclusivity, uncertainty and information inequalities. A public-private consortium led by Lantmäteriet – a Swedish government agency – has pioneered the use of blockchain technology for the conveyance of a house to address these deficiencies. This project has not moved beyond the proof-of-concept phase, while the socio-technical organisation of transactions has evolved. Insights from institutional and evolutionary approaches help conceptualise how technologically induced and qualitatively different structures and functional effects may change the way housing and mortgage markets will work, thereby highlighting both disruptive potentialities and limitations of blockchain applications for the legacy design underpinning the current Swedish housing transaction system. Following a forensic empirical approach, this paper dissects the organisational architecture, key practices and the linked network of actor groups running Sweden's property and mortgage markets. Results illustrate that understanding concrete blockchain-induced changes and their unintended consequences requires closer scholarly attention at the scale of actor networks, the types of knowledge and technologies, and the micro-geographies in which they are embedded. Such in-depth understanding enables better-informed assessments of the blockchain challenge for complex housing and mortgage markets.
Recently emerging Decentralized Finance (DeFi) transforms traditional financial products into trustless and transparent protocols. However, these protocols often require real-time external price information, and in this respect an entity named oracle is proposed-a third party reporting the prices from real-world sources to the blockchain. Unfortunately, current oracle designs lack transparency, compatibility and accountability (e.g., report deviations and operational failures/anomalies). Further-more, they merely include economic rewards without fine-grained financial penalties. To address these problems, we present BANC, the first transparent incentive protocol that aims at accountability and compatibility for DeFi price oracles. BANC requires oracles to transparently declare a manifest such that their obligations can be provably examined by authorized punishers. With a fair dispute-resolution protocol, BANC enables compliant oracles to invoke self-justifications, which can be resolved by a watchtower consortium securely and efficiently. BANC is designed to enhance operational accountability of DeFi oracles, and can be compatible with most DeFi platforms at low cost. We fully implement BANC to evaluate its efficiency.
Francesca Carapella, Edward J. Dumas, Jacob Gerszten, Nathan Swem · 5 authors
Decentralized finance (DeFi) refers to a set of newly emerging financial products and services that operate on decentralized platforms using blockchains to record and share data. DeFi products and services are conducted without a trusted central intermediary such as a bank, and they include payments, lending and borrowing, trading and investments, capital raising (crowdfunding), and insurance. An important innovation that allowed for the development of DeFi was the growth of programming capability on blockchains. This innovation allows for the creation of computer code called smart contracts that can be invoked by users without going through a centralized intermediary. DeFi may pose financial stability risks, that are exacerbated by the fact that both are currently largely outside the prudential regulatory perimeter, which we discuss.
The traditional banking functions of lending, deposit-taking and payment intermediation are being unbundled in the new frontiers of money that extend from virtual currencies to crypto-assets and from shadow payments to quasi-money. The possibility for digital-centred change in the financial industry is illustrated by distributed ledger technology, of which ‘blockchain’ is the most prominent example of automated decision-making. Other forms of decentralised supply of money, payment services, and funding processes may allow households and businesses to obtain loans and pool risks without having recourse to financial intermediaries. This article examines the alternative provision of access to low-cost zero-friction payments from the perspective of the underbanked. Promoting innovation through alternatives to credit means integrating vulnerable and excluded customers into mainstream financial systems. Blockchain technology backed by a possible modification of the law on the recognition and transfer of property rights might prove instrumental in unlocking the value of the assets possessed by the underbanked or even the unbanked.
Irina MNOHOGHITNEI, Alexandra HOROBEȚ, Lucian Belaşcu
Ever since the Global Financial Crisis, the financial system has seen an accelerated level of innovation. Bitcoin offered a decentralized alternative to money, with thousands of other cryptoassets quickly emerging. Most recently, Decentralized Finance (DeFi) promises to offer a new digital economy, with smart contracts replacing the need for financial intermediaries. This new market aims to reinvent traditional financial products in a more transparent and interoperable way. In this paper we aim to undertake an extensive literature review of the financial stability risks posed by the fast-growing DeFi market and assess these using the Financial Stability Board’s fintech framework. We find that DeFi could pose several challenges to traditional financial infrastructure, primarily by increasing interlinkages between cryptoassets and traditional financial markets. However, if DeFi evolves in a safe way, it could increase competition and financial inclusion with overall positive implications for financial stability.
Ziqiao Ao, Lin William Cong, Gergely Horváth, Luyao Zhang
Decentralized finance (DeFi) has the potential to disrupt centralized finance by validating peer-to-peer transactions through tamper-proof smart contracts, thus significantly lowering the transaction cost charged by financial intermediaries. However, the actual realization of peer-to-peer transactions and the levels and effects of decentralization are largely unknown. Our research pioneers a blockchain network study that applies social network analysis to measure the level, dynamics, and impacts of decentralization in DeFi token transactions on the Ethereum blockchain. First, we find a significant core-periphery structure in the AAVE token transaction network where the cores include the two largest centralized crypto exchanges. Second, we provide evidence that multiple network features consistently characterize decentralization dynamics. Finally, we document that a more decentralized network significantly predicts a higher return and lower volatility of the decentralized market of AAVE tokens on the Ethereum blockchain. We point out that our approach is seminal for inspiring future extensions related to the facets of application scenarios, research questions, and methodologies on the mechanics of blockchain decentralization.
The COVID-19 pandemic has disrupted the value chains for all major business sectors, with a great impact on the way we interact, socialize, transact, and trust the systems that we use on a daily basis. The magnitude of this major health crisis imposed a new level of digitalization, to which everyone needed to adapt, with great costs in terms of social, psychological, political, and economic transformation. In order to adapt in a new digital environment, imposed by the pandemic, we witnessed the adoption of decentralized ecosystems and technologies. One of the technologies that stood as foundation for this decentralization movement is blockchain. The first adaptations for blockchain technology happened within the financial services, with the introduction of the financial digital assets or crypto assets. This created the base for concepts like decentralized finance (DeFi), Web 3.0, and the metaverse. This chapter will assess the frontier of financial digital assets, which has emerged and developed the perfect infrastructure for scalability, efficiency, and transparency.
Abstract The rise of digital currencies challenges practices of monetary sovereignty and impacts the international monetary order. Drawing on recent IPE debates about the public‐private nature of money, the critique of the “impossible trinity” and “territorial currencies,” this article explores the competition between China and the United States over and within the international monetary system. The two largest economies display strikingly divergent regulatory approaches to cryptocurrencies and Central Bank Digital Currency (CBDC). China completely banned cryptocurrencies but became a front‐runner in developing a CBDC. It aims to expand the RMB's global role without giving up its monetary control. U.S. administrations have instead reluctantly considered regulating cryptocurrencies. Discussions on a potential digital U.S. dollar (USD) only began in 2020. Washington aims at preserving the existing cross‐border financial mechanisms and offshore infrastructure for USD‐denominated transactions and credit creation. It focuses on financial crime and maintaining the innovation dynamic of its private sector to preserve its “exorbitant privilege.” Emerging financial infrastructures and standards for digital currencies are the new technological arena for U.S.–China monetary competition.
Abstract While contemporary technological disruption is increasingly conceptualized in terms of the logic and paradoxes of the digital platform economy, discussions of FinTech have only engaged to a limited extent with these debates—particularly from an economic geographic standpoint. This chapter fills this gap by extending the Global Financial Network (GFN) framework to problematize the organizational and geographic logic of the digital platform economy in finance, and applying it to examine the impact of the digital platform model on asset management. It shows that asset management is being profoundly disrupted by what we dub digital asset management platforms—or DAMPs—which encompass services including index fund and ETF provision, robo-advising, and analytics and trading support. Like other digital platforms, DAMPs do not so much leverage technology to enhance their competitiveness within markets, as to radically restructure the market itself. Also, like other platforms, their rise has produced a winner-take-all paradox of centralization through democratization that defies predictions of technology-enabled industry decentralization. However, the logic and implications of the rise of DAMPs diverges, in other respects, from nonfinancial digital platforms, as finance has long possessed an informational intensity and regulatory and organizational fluidity characteristic of the digital platform economy. Consequently, the digital platform model has mostly developed endogenously in asset management through incremental innovation by major financial firms—in a process that has reinforced the position of leading incumbent asset management centers, and above all New York—rather than being introduced from the outside by upstart technology firms and clusters.
Lioba Heimbach, Eric Schertenleib, Roger Wattenhofer
Trade execution on Decentralized Exchanges (DEXes) is automatic and does not require individual buy and sell orders to be matched. Instead, liquidity aggregated in pools from individual liquidity providers enables trading between cryptocurrencies. The largest DEX measured by trading volume, Uniswap V3, promises a DEX design optimized for capital efficiency. However, Uniswap V3 requires far more decisions from liquidity providers than previous DEX designs. In this work, we develop a theoretical model to illustrate the choices faced by Uniswap V3 liquidity providers and their implications. Our model suggests that providing liquidity on Uniswap V3 is highly complex and requires many considerations from a user. Our supporting data analysis of the risks and returns of real Uniswap V3 liquidity providers underlines that liquidity providing in Uniswap V3 is incredibly complicated, and performances can vary wildly. While there are simple and profitable strategies for liquidity providers in liquidity pools characterized by negligible price volatilities, these strategies only yield modest returns. Instead, significant returns can only be obtained by accepting increased financial risks and at the cost of active management. Thus, providing liquidity has become a game reserved for sophisticated players with the introduction of Uniswap V3, where retail traders do not stand a chance.
DeFi is short for “decentralized finance,” is a financial application which is highly secured. Decentralized Finance (DeFi) for transferring and managing crypto assets similar to managing fiat assets at present i.e., bank accounts. It gives us exposure to the global markets and alternatives to the currency we use or banking options. DeFi is connected with blockchain, which is decentralized, immutable, and that enables all computers (or nodes) on a network to hold a copy of the history of transactions. DeFi helps us to control and visibility over your money. There is no single entity that has control over, or can alter, that ledger of transactions. It also replaces the bankers and brokers that are enforcing laws against money laundering, creating an unknown economic environment that the regulators would have to traverse and DeFi can address many of the flaws in the existing financial systems, including giving the unbanked access to the financial system. DeFi is distinct as a result of it expands the utilization of blockchain from easy price transfer to complex financial use cases. DeFi products open up financial services to anyone which requires internet connection and they're largely owned and maintained by their users all over the world. So far billions of dollar’s worth of crypto has flowed through DeFi applications and it's expanding day by day. DeFi will be the future which will replace all kinds of transactions. Keywords: DeFi, Blockchain, Money laundering
The term FINTECH refers to the junction of finance and technology, as well as how they are employed to progress finance. Fintech encompasses a diverse range of industries, including education, banking, insurance technology, payments, lending, and more. Fintech also covers the digitization of assets and the use of cryptocurrency via blockchain technology. Blockchain is a ground-breaking technology that allows users to record transactions on a decentralised, distributed ledger without the use of a middleman. Cryptocurrency is a derivation of the blockchain revolution, which some refer to as "the trust machine." This paper is mainly focused on the application of block chain technology i.e., cryptocurrency that has an impact on financial sectors. This paper focused on secondary data as perceived by many researchers through the collective references with the help of several investigations conducted by the experts. This review article is a Pure research or Fundamental research in nature. The secondary data is collected from online database, journals, and e-books respectively.
Due to the widespread use of smart contracts, Ethereum has become the second-largest blockchain platform after Bitcoin. Many different types of Ethereum accounts (ICO, Mining, Gambling, etc.) also have quite active trading activities on Ethereum. Studying the transaction records of these specific Ethereum accounts is very important for understanding their particular transaction characteristics, and further labeling the pseudonymous accounts. However, traditional methods are generally based on static and global transaction networks to conduct research, ignoring useful information about dynamic changes. Our work chooses six kinds of important account labels, and builds ego networks for each kind of Ethereum account. We focus on the interaction between the target node and neighbor nodes with temporal analysis. Experiments show that there is a significant difference between various types of accounts in terms of several network features, helping us better understand their transaction patterns. To the best of our knowledge, this is the first work to analyze the dynamic characteristics of Ethereum labeled accounts from the perspective of transaction ego networks.
Michael Darlin, Georgios Palaiokrassas, Leandros Tassiulas
The rise of Decentralized Finance (“DeFi”) on the Ethereum blockchain has enabled the creation of lending platforms, which serve as marketplaces to lend and borrow digital currencies. Initially, we categorize the activity of lending platforms within a standard regulatory framework. We then propose an Ethereum address grouping algorithm using activity over DeFi protocols and employ a novel classification algorithm to calculate the percentage of fund flows into DeFi lending platforms that can be attributed to debt created elsewhere in the system (“debt-financed collateral”). Based on our results, we conclude that the wide-spread use of stablecoins as debt-financed collateral increases financial stability risks in the DeFi ecosystem.
2008 yılında Bitcoin icat edilmiş ve kısa zaman içinde çok sayıda yatırımcının ilgisini çekmeyi başarmıştır. Zaman ilerledikçe Bitcoin dışında başka kripto paralar işlem görmeye başlamışlardır. 2012 yılından günümüze kadar kripto paralarla gerçekleşen işlem hacimleri önemli boyutlara gelmiş durumdadır. Tüm dünyada olduğu gibi ülkemizde de kripto paralar yatırımcıların ilgisini çeken varlıklar olarak görülmektedir. Bu çalışmada Bitcoin İşlem hacimleri ile Türk bankacılık sektöründeki mevduatlar arasında uzun dönemli bir ilişkinin olup olmadığı Engle-Granger eşbütünleşme testi kullanılarak analiz edilmiştir. Yapılan analiz sonucunda, Bitcoin işlem hacimleri ile Türk bankacılık sektöründeki mevduat hacimleri arasında uzun dönemli bir ilişkinin olduğu tespit edilmiştir.
The fast-growing, market-driven demand for cryptocurrencies worries central banks, as their monetary policy could be completely undermined. Central bank digital currencies (CBDCs) could offer a solution, yet our understanding of their design and consequences is in its infancy. This non-technical paper examines how The Bahamas has designed the Sand Dollar, the first real-world instance of a retail CBDC. It contrasts the Sand Dollar with definition-based specifications. The author then develops a scenario analysis to illustrate commercial bank risks. In this process, the central bank becomes a deposit monopolist, leading to high funding risks, disintermediation risks, and solvency risks for the commercial banking sector. This paper argues that restrictions and caps will be the new specifications of a regulatory framework for CBDCs if disintermediation in the banking sector is to be prevented. The anonymity of CBDCs is identified as a comparative disadvantage that will affect their adoption. These findings provide insight into governance problems facing central banks and coherently lead to the design of the Sand Dollar. This paper concludes by suggesting that combating cryptocurrencies is a task that cannot be solved by a CBDC.
Distributed ledger technologies (DLTs) are expected to disrupt the corporate finance field by offering a cheaper, quicker and simpler funding alternative for companies, thus playing a relevant role in improving access to the financial markets. This paper seeks to test this premise. Based on information collected from advisors in two transactions completed in the market, the paper compares the process of a traditional international bond issue with one on a DLT platform. The paper clarifies how a DLT-based bond issue is conducted in practice and concludes that such issues are not more affordable or time efficient and are equally complex when compared to a conventional issue. These conclusions are, however, limited in scope due to the case study methodolody adopted. The conclusions may also be impacted by the analysis of legal matters beyond the process of issuance and by the consideration of quantitative data concerning the costs incurred with the issue.