Cryptogram-22JUL2022

DeFi ❤️ TradFi

July 22, 2022

22 July 2022

In this issue

Hello, One of us here at Team Cryptogram has been binge-watching the superhit American legal drama, ‘The Good Wife,’ of late and there is an episode on Bitcoin in the third season. Aired in 2011, the episode puts the price of BTC between USD 3 and USD 33 (lol yeah, remember those times?!), and one of the central questions before the judge in the fictional case is if Bitcoin is a currency, and if yes, the revenue service asks that the anonymous creators of Bitcoin be exposed and arrested for violating US federal laws in creating a new currency. Watch that episode today and you realise how far we have come, not only with the price of BTC, but also with the mainstreaming of Decentralised Finance (DeFi) into Traditional Finance (TradFi). The notion that cryptocurrencies are criminal is laughable today. Sure, some central banks and traditional investors are still complaining about cryptocurrencies because they just don’t get the point, but even they will agree that DeFi and TradFi are inseparable now. This week, as the crypto markets see a major bounce-back following the high inflation numbers being reported in the US, we talk about how much of TradFi is now codependent on DeFi, and why their futures are now irrevocably fused.

The newsletter is put together by Giottus Crypto Platform and The News Minute’s Brand Studio. You can read all the previous issues of Cryptogram here.

Was this newsletter forwarded to you?

THE BIG STORY

The merging of decentralised finance with traditional finance

Few years from now, when you are making daily transactions from your ‘crypto savings account’ or some such via your trusted retail bank like SBI and HDFC, think back to this moment when you were reading a newsletter which said that it is only a matter of time that it happens. RBI can whine about cryptocurrencies, the finance ministry can tax us to death – but here’s the plain truth: the technologies which power decentralised finance today will swallow traditional finance in whole, and the same institutions which drive global finance today will be sitting on the driver’s seat of the new ecosystem. New-age tech geeks and institutions with old money are fast realising that…

Image: ethereum.org

We are well on our way towards this destiny. Out of the top 100 banks by assets under management, 55 have invested in cryptocurrency and/or blockchain-related companies. Around 23 banks have made at least one investment in blockchain/crypto-linked entities from August 2021 to May 2022.

The Bank of New York Mellon (BNY Mellon) announced in February 2021 that it would hold, transfer, and issue Bitcoin for asset management clients, one of the first announcements of its kind for a major Wall Street bank. Now, several major banks and asset management firms including Deutsche Bank, Morgan Stanley, Citigroup, and Goldman Sachs offer wealth management services for crypto assets. The Commonwealth Bank of Australia has announced that they plan to integrate Gemini’s crypto exchange and custody service into their mobile banking app, CommApp, via APIs.On July 12, DBS bank announced that they executed their first trade finance transaction on the Trusple blockchain. The transaction was around $40,000 for construction stone material.Indian banks’ foray into DeFi to counter fraudBanks in India may not have embraced crypto with open arms, but they aren’t willing to be left too far behind either. Last year, big banks including the State Bank of India (SBI), ICICI Bank, Kotak Mahindra, Axis Bank, and 11 others formed a new company called the Indian Banks’ Blockchain Infrastructure Company Private Limited (IBBIC). The new entity has a mandate to leverage technology to solve the fundamental problem in traditional banking – processing of Letter of Credit (LC), GST invoices, and e-way bills. In February 2022, Axis Bank successfully executed industry-first blockchain-enabled domestic trade transaction with Arcelor Mittal Nippon Steel India, and Lalit Pipes & Pipes Ltd on Secured Logistics Document Exchange (SLDE), a government-backed platform. The transaction involved the process of letter of credit advising as well as digital presentation of underlying trade documents including invoice and transport documents.HDFC bank, ICICI Bank and State Bank of India are among nearly a dozen top lenders the central bank is engaging with to run a blockchain-based pilot project centred on trade financing. If successful, it could help prevent loan frauds by the likes of Nirav Modi and Mehul Choksi, fugitive borrowers who gamed the system to siphon off thousands of crores of rupees. Tampering of documents like LC is one of the project’s focus areas, and blockchain technology can help prevent the misuse of LCs, by issuing digital versions of them.What the crash taught usIt is estimated that DeFi could eliminate the need for nearly 90% of present-day TradFi services. But it may not be allowed to happen unless institutions like the central banks and governments become part of the ecosystem. And this isn’t a bad thing, as the recent crash has taught us. While several critics are seizing the moment in the ongoing crypto bear market to punch holes in the ecosystem, it is becoming clear to them that you cannot wish crypto away, the solution is sensible regulation. Making DeFi safer for the consumers and protecting their interests through regulations of the same old-world regulators might be contradictory to the very core of DeFi, but some form of a compromise between the two worlds will be the only way forward, and it will benefit everyone in the ecosystem willing to accept the new reality.

 

Was this newsletter forwarded to you?

  THE TOP FIVE 

Stories from this week you cannot miss

1. Regulators in the U.K. are introducing rules for using stablecoins as payment tools to Parliament. 2. Dubai's metaverse plan targets 40,000 virtual jobs in next five years.3. The Central Bank of Singapore along with the Monetary Authority of Singapore (MAS) together to develop Singapore’s crypto industry. 4. Paraguay has approved a bill that seeks to regulate cryptocurrencies and their operations in the country. 5. Time Magazine looks to turn all future subscriptions into NFTs, to give holders exclusive subscription rights and the ability to own their data.

  EXPLAIN, PLEASE 

Demystifying the world of cryptocurrency

Speaking of TradFi meeting DeFi, this week we explain CBDCs, or Central Bank Digital Currencies. You have undoubtedly heard of several countries’ central banks announcing their own digital currencies – India too has announced it.First things first, they are not cryptocurrencies. They are digital currencies which are built on a blockchain, but are different from other cryptocurrencies in one significant way: they are controlled by the central bank.A CBDC is representative of a government-issued currency which operates on a blockchain (decentralised network) and thus transactions are validated by a consensus mechanism. But the control of the currency will still be with the bank.

That’s it for this week, see you next Friday!If you have any questions or feedback for us, write to us at [email protected]. You can check out the previous issues here.

Was this newsletter forwarded to you?