Image: REUTERS/Jose Cabezas Image: REUTERS/Jose Cabezas

WEF plan to decentralize finance and transform business services

 How decentralized finance will transform business financial services – especially for SMEs

For smaller businesses in developing markets, decentralized finance offers a more suitable system than traditional banking

  • Decentralized finance (DeFi) is emerging as a tool for smaller businesses in developing markets, particularly for remittances and small loans;
  • The transaction banking industry is beginning to see DeFi's potential to overhaul the inflexibility of present processes;
  • Uptake of DeFi in transaction banking could open up new capital opportunities for larger companies and increase liquidity for SMEs.

Decentralized finance had a resurgence last summer. Cryptocurrencies like bitcoin and ether are now becoming more widely accepted for payments and USD Coin (USDC) has made significant progress towards being an asset that will maintain its value without future depreciation.

At the same time, the blockchain technology that underlies cryptocurrency and its supporting financial infrastructure are on their way to offering a system of financial rails in parallel to – and connected with – traditional financial infrastructure.

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Both Coinbase and Compound Treasury have released USDC-based loans that guarantee at least a 4% yield (far higher than traditional products of a similar risk), and smaller platforms are offering cross-border access to capital with rates that are far more variable but would be unavailable otherwise. So far, this growth in loan products has come from the retail sector: individuals holding and trading crypto-assets for personal use. Banks such as Morgan Stanley and US Bank now offer crypto-products for their wealth management clients. But what about businesses?

Since its inception, DeFi – literally decentralized finance or blockchain-based forms of finance that do not rely on centralized intermediaries such as banks – has been adopted to some extent by smaller businesses in developing markets whose needs are unmet by the traditional banking system. For example, some businesses use payment companies like BitPesa in Africa, Tranglo in ASEAN and the major DeFi exchanges to either make direct payments or convert payment amounts to USD-backed stablecoin for cross-border remittance.

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By Rebecca Liao / Co-Founder, SKUChain

Rebecca Liao is Co-Founder of Skuchain, a blockchain platform that provides an end-to-end solution for the supply chain. She is also a writer and China analyst.

She was a member of Secretary Clinton’s foreign policy team for her 2016 presidential campaign, responsible for Asia trade and economic policy. Her writing has appeared in the New York Times, Financial Times, Foreign Affairs, The Atlantic, The National Interest, Bloomberg View, n+1, Georgetown Journal of International Affairs, Times Literary Supplement, Chinafile, The Diplomat, Huffington Post, Dissent Magazine, The New Inquiry, the LA Review of Books, The China Story Journal, Tea Leaf Nation, San Francisco Chronicle and San Francisco Classical Voice. She regularly comments on China for Deutsche Welle and Channel NewsAsia and has also appeared on HuffPost Live and SiriusXM Radio. She is a contributing editor at SupChina.

A graduate of Stanford University, where she studied Economics, and Harvard Law School, she founded The Aleph Mag, a digital magazine about art, culture and Chinese law and politics. She serves as Co-Chair of the Brookings Society and is a member of the Board of Directors of Words Without Borders, Voices of Music and the Wagner Society of Northern California. She is also a member of the National Committee on US-China Relations. Rebecca is a jazz and opera singer and tweets at @beccaliao.

Rebecca was previously Director of Business Development and head of Asia at Globality, Inc., a B2B platform for AI-powered procurement of professional services. She began her career as an international corporate attorney, representing clients in Asia, North America and Europe across a variety of industries, including Internet, mobile, semiconductors, enterprise software, energy, advertising technology, consumer technology and finance. Her work focused on domestic and cross-border transactions, including mergers and acquisitions, joint ventures, private equity investments, venture financings, debt financings and public offerings of debt and equity. She also regularly advised public and private companies on corporate governance and securities law compliance.

(Source: weforum.org; July 19, 2021; https://tinyurl.com/y5c65s68)
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