DeFi “Decentralized Finance” refers to a new generation of financial applications disrupting the market using cryptocurrencies. DeFi is built on blockchain, allowing participants on a network to immutably share data and the transaction history using a distributed ledger, meaning it isn’t controlled by a central source. Blockchain technology allows payments to occur directly between buyers and sellers, circumventing middlemen and thereby reducing costs for both parties. Blockchain also enables the transaction verification process, which is a significant cost center for banks today. In fact, Santander Inno Ventures estimates blockchain technologies can reduce banks’ infrastructural costs by $15–20 billion by 2022. DeFi is distinct because it expands the use of blockchain from simple value transfer to more complex financial use cases – a feature the e-commerce world and institutional banks will adopt, transforming the entire global finance system in coming years.
Early DeFi initiatives in 2020 are being driven by startups, typically issuing their own “stablecoins” – a type of cryptocurrency backed by an asset such as the U.S. dollar or Euro – to cut out middlemen from the services they offer to their customers. Stablecoins distinguish themselves from their highly volatile cryptocurrency brethren such as Bitcoin because their values reflect the value of the underlying assets to which they are referenced e.g., U.S. Dollars. While most of the early DeFi services are targeted towards cryptocurrency traders, a larger opportunity lies in settlements and transfers for consumers and businesses, signaling a dramatic transformation ahead.
Although DeFi seems to be a direct threat to the existing financial system and institutional banks, they are very likely to be beneficiaries of DeFi services as well. Complex financial transactions across banks will be simplified by removing middlemen, not only speeding up transactions to near real-time but also reducing fees, thus opening the doors for innovative new business models. Early adoption by banks will likely be in the form of using the services of the emerging DeFi innovators, but banks will start building their own DeFi infrastructures in order to remain competitive. JPMorgan’s recent announcements around JPM Coin and its establishment of a new business unit called Onyx to evangelize its blockchain and digital currency efforts exemplifies such a case.
While regulatory challenges represent barriers to early adoption, the technology requirements to integrate existing financial systems and applications with the DeFi world remain formidable.
At the top level, we see the following technology challenges:
- A uniform and non-intrusive gateway into existing financial back-end applications
- Integration with cryptocurrency exchanges
- Transparency and interoperability of the underlying Blockchain platforms
- Workflow orchestration across business boundaries
BCware has been addressing these technology challenges since it was founded in 2018 by enterprise integration pioneers who played a central role in digitizing Wall Street. BCware’s platform is built to enable Blockchain-powered business ecosystems, transforming multi-party processes and transactions. Our unique approach allows companies to harness the power of Blockchain by eliminating implementation and operational complexity.
The platform is fully API-driven with the following key features:
- API layer providing seamless integration with existing business applications
- BCflow core engine orchestrating and digitizing event-driven cross-company workflows
- Abstraction layer providing transparency and interoperability of the underlying Blockchain platforms
BCware is already working with DeFi start-ups providing infrastructural foundation for their technology and business including:
- Vitreo, a security token issuance platform
- Security token ecosystem linked to real-estate
BCware is committed to providing cutting-edge, mission critical technology to become a trusted partner to innovators in the DeFi industry. We take complexity out of integrating legacy financial systems with blockchain-powered DeFi, enabling our partners and customers to focus on their groundbreaking applications and creating new business models.