While cryptocurrency prices have fallen sharply from their all-time high in November 2021, decentralized financial (DeFi) applications continue to grow and draw users to blockchain technology. This flourishing universe wants to do without intermediaries such as digital giants, but also banks, by directly connecting users.
However, banking institutions could play a card and reintroduce some form of intermediation to offer innovative services from DeFi. “Decentralized finance is not ready in terms of ergonomics and this is where banks and their networks, their sites and their applications can make applications more accessible and easy to use,” notes Julien Maldonato, Deloitte partner and advisor in the financial sector, and Web3 .
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DeFi remains very little known to the general public. Aside from those from geek and financial circles, few venture there. Some apps, like Curve, still have very rough and technical interfaces. Others show more attractive sites, but generally remain in English, in financial jargon. Banks could reach a wider audience than insiders by acting as a distributor of DeFi products to ordinary savers and investors.
“It would be a way for them to expand their product range and offer new products that they couldn’t build themselves,” explains Julien Maldonato.
Better returns than Livret A, or even life insurance
In particular, banks can take advantage of DeFi to offer their customers more attractive returns. For example, they could democratize staking, this mechanism for validating cryptocurrency transactions that is in effect on the vast majority of blockchains except Bitcoin, and is rapidly being used by Ethereum after a highly anticipated update in mid-September called “The Merge”.
Staking consists of immobilizing some of your digital assets to participate in the validation of trades while taking advantage of a return in return. “A bank’s engineers can create a node on an energy-efficient and robust blockchain like Tezos, put their financial institution’s servers to work to help secure this network and enable customers to bet on it,” explains the advisor of a bank. Deloitte out.
Another possibility: agriculture, these liquidity pools that allow you to exchange one cryptocurrency for another. Decentralized exchange platforms, such as SushiSwap, Uniswap or PancakeSwap, offer a fee to those who provide liquidity. Again, banks could place cryptocurrencies for their customers on this type of platform, to give them returns of up to 7%.
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Finally, there are cryptocurrency borrowing applications such as Aave, Maker DAO or Compound. “These applications provide good risk management,” assures Julien Maldonato. The principle here is to provide a return to users who lend their cryptocurrency assets. In order to get a loan in this or that cryptocurrency, borrowers deposit other crypto assets on their side that they do not need for the duration of the loan, so that they serve as collateral (collateral). A way to avoid default.
“Here we come back to a form of Lombard credit”, explains Julien Maldonato. This type of loan was secured by investments that were given as collateral.
Cheaper international transfers
To facilitate international transfers, banks could also use stablecoins, which are cryptocurrencies whose price is backed by traditional currencies, such as the euro or the dollar. “Today, the costs are very high to send money abroad, for example to the United States. You have to manage the weight of compliance, linked to the different jurisdictions involved, which is expensive,” emphasizes Julien Maldonato.
Stablecoins drastically reduce the number of intermediaries, because “everyone will draw directly from the blockchain”. Banks can use various stablecoins such as USDP (Pax Dollar), regulated in New York State, or EUROC (Euro Coin or Circle). Above all, they could decide to create their own stablecoin, like the payment giant Paypal does.
A bank-specific stable euro coin can be a way to build customer loyalty. “It would make it possible to provide an ecosystem that functions flexibly. Rewards could be associated with the stablecoin, which could be used for farming instead of “sleeping,” says the Deloitte expert.
Suggest another way to ensure:
By taking a side step into insurance products, banks could offer digital asset coverage through a decentralized financial app like Nexus Mutual. Its operation consists of insuring assets against the risk of loss (in the case of piracy, for example) thanks to a pooled sum of money. The app uses the Ethereum blockchain “so people can share risk together without the need for an insurance company,” it explains on its website.
With this system, anyone can insure these assets “but also become an insurer and collect both premiums and benefits”, specifies Julien Maldonato. If the application focuses on digital assets today, perhaps objects, such as a smartphone, will in turn be insured in this way tomorrow.
Position yourself in the economy of tomorrow
Finally, with the rise of digital, banks could develop digital wallets, which would be “a gateway to DeFi and a whole new world,” explains Julien Maldonato. This wallet could host the user’s digital identity and give him access to his crypto assets, NFTs and virtual goods, as well as metaverses and other services.
If the banks don’t offer such wallets, other players will. The Ledger Tricolor Unicorn, specializing in ultra-secure physical wallets, has come a long way in this area. “A bank could one day try to buy it before it gets too big and expensive to acquire,” said the Deloitte specialist.
More generally, DeFi players move their pawns forward. For example, The Aave Company, the company behind the cryptocurrency lending protocol, recently won an electronic money establishment license in Europe. It could soon launch a bank card to better democratize DeFi.
Banks therefore have an interest in positioning themselves if they want to distribute products and services derived from DeFi and not face too much competition from this new decentralized financing. However, this market remains very young. They should therefore proceed with caution and seek out the various existing applications, some of which still seem shaky and too insecure.
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