While serious institutional interest in crypto is perhaps becoming more of an established trend than an emerging narrative, the big players typically focus on Bitcoin (BTC). However, assets like Ether (ETH) and decentralized finance (DeFi) are starting to grab the attention of large investors.
For Siam Commercial Bank (SCB), through its subsidiary SCB 10X, DeFi is a focal point of its current digital asset strategy, as Thailand’s oldest bank braces for the expected financial technological disruption of decentralized finance. While other banks are still undecided or only making temporary forays into interacting with digital assets, SCB says it wants to commit funds to explore blockchain and the DeFi space.
SCB 10X’s focus on DeFi also comes at a time when Thai regulators are targeting the decentralized financial space for tighter regulations. Indeed, regulatory attention is shifting more and more to the niche market space with national and intergovernmental agencies seeking to develop legal policies for the DeFi market.
DeFi initially kept the promise of decentralization; the disintermediation of the established custodians of global finance. However, with banks and financial institutions investing in decentralized technology, the narrative appears to be moving towards a hybrid form of DeFi known as Regulated DeFi, which combines existing standards and the efficiency of traditional finance, instant settlements. and the cost reduction benefits associated with decentralized protocols. .
SCB 10X’s $ 110 million blockchain war chest began as a $ 50 million seed fund launched in February by SCB 10X, the venture capital arm of the bank. As reported by Cointelegraph at the time, the fund further reinforced the bank’s forward-thinking approach to emerging developments in digital finance.
In a conversation with Cointelegraph, Mukaya ‘Tai’ Panich, director of venture capital and investments at SCB 10X, said DeFi was something of a revelation for the bank in its assessment of the emerging digital financial landscape.
“We were working on the blockchain industry and started looking at DeFi. And we were amazed at it, ”Panich told Cointelegraph. According to the head of SCB 10X, the bank quickly detected the paradigm shift in potential DeFi technology and the possible disintermediation of traditional financial institutions.
“DeFi projects can be completely automated,” he said, noting that human involvement would be limited to smart contract code upgrades. Panich also spoke about the revolutionary nature of smart contracts and how lines of code can enable direct transactions between entities such as lenders and borrowers without the need for a central counterparty.
Given the possibility of DeFi upsetting the legacy financial status quo, Panich argues that banks would do well to prepare for the impending disruption:
“The reason we want to invest in DeFi and be part of the DeFi protocol ecosystem is that we want to understand and capitalize on DeFi, given its potential to significantly impact the financial industry. “
At $ 110 million, the blockchain and DeFi fund represents almost half of SCB 10X’s $ 220 million venture capital fund. Commenting on the size of the allocation to digital assets, Panich said this reflects the bank’s commitment to the DeFi space, adding:
“SCB 10X has invested and developed multiple collaborative relationships with the blockchain community in Asia and around the world, including Ripple, BlockFi, Sygnum, Alpha Finance Lab, Anchorage, Anchor Protocol (which is part of the Terra chain), Axelar and Ape Board, among others. “
Related: Thai bank’s venture capital arm invests in institutional cryptocurrency custodian Anchorage
Reassemble global finance
In April, John Whelan, head of Banco Santander’s blockchain lab in Madrid, made an argument for regulated DeFi. Layer two private settlement networks for asset classes operating on top of public blockchains are likely to emerge in the future, according to Whelan.
According to Whelan, adopting blockchain to reduce transaction settlement throughput is a major focus of interest for stakeholders in traditional finance. Whelan’s comments highlighted the emerging narrative that rather than disintermediation, financial institutions will find ways to embrace DeFi technology in their own backend processes.
Panich also echoed similar sentiments, telling Cointelegraph: “I want to stress that I really see a future where traditional financial companies will work with DeFi companies. My point of view is that in the future there will be an integration of traditional finance with DeFi. “
According to SCB 10X’s chief investment officer, banks and financial institutions have the “customer-facing” experience they need to better deliver innovative fintech services to consumers. “Going forward, I can see a world where DeFi can power the back-end of traditional financial companies,” added Panich.
For Rachid Ajaja, CEO and co-founder of decentralized capital market firm AllianceBlock, the promised reversal of DeFi legacy funding is something that will happen in the long run. However, Ajaja said the near-term trend will be for more financial institutions to take advantage of aspects of decentralized finance.
The CEO of AllianceBlock drew parallels with the era of digital transformation which saw the emergence of fintech companies providing services through APIs that interface with the banking system. “With the merger of DeFi and financial institutions, we will see exactly the same thing, and little by little legacy systems will change,” Ajaja told Cointelegraph, adding:
“In the long run, I am absolutely convinced that DeFi will completely disrupt the global financial system, because everything done in traditional finance can be replicated in DeFi at lower cost, less need for an intermediary, new opportunities and new increased sources of income. It’s just a matter of time.”
Craig Russo, Innovation Director of the Non-Fungible Token Vault and PolyientX Marketplace Protocol, also provided additional insight into the possible future path for DeFi adoption in global finance. Russo told Cointelegraph that financial institutions will most likely adopt open access protocols through initiatives like Compound Treasury while also using DeFi technology in their internal systems.
“One of the great goals of the DeFi movement is to reorganize the current economic system to better align incentive structures, which may ultimately go against the interests of some institutions while opening the door to a new wave of ‘fintech innovation,’ Russo added.
Related: Thailand to target DeFi in latest regulatory crackdown
Coping with regulatory pressure
As the SCB 10X continues to explore blockchain investment opportunities, Thai authorities are shining the regulatory spotlight on DeFi. In June, Thailand’s Securities and Exchange Commission (SEC) announced plans to consider a licensing regime for decentralized financial protocols, especially projects that issue tokens.
Commenting on how the bank will handle the scrutiny of the DeFi space, Panich said, “The goal of SCB 10X is to absolutely comply with regulations set by the government and regulators such as the Thai SEC and the Bank of Thailand. Thailand”.
“Blockchain and DeFi are very young, emerging and rapidly changing industries. As an active TradFi player in DeFi, it behooves us to work closely with government and regulators to help bring the DeFi industry perspective to the fore, finding optimal ways to move the business forward quickly. ‘industry.
The Thai SEC’s plan to review DeFi regulations is indicative of the current focus on DeFi by regulators around the world. Also in June, the World Economic Forum released a policy toolkit for fair and effective DeFi regulation.
The focus on fair and effective regulations is likely based on fears that blockchain startups could be at a compliance disadvantage if more stringent measures are applied to DeFi. Regulated entities such as banks and financial institutions may find it easier to negotiate these political constraints.
Indeed, AllianceBlock’s Ajaja made the same point to Cointelegraph, stating, “DeFi primitives are definitely at a disadvantage in this regard compared to their traditional finance counterparts. As such, Ajaja said compliance gateways for protocols such as Know Your Customer and Anti-Money Laundering are needed for greater compatibility with traditional finance and the move towards interfacing with global assets. real for DeFi primitives.