Ernst & Young Global, one of the “big four” accounting firms, said it is building technology and designing programs for certain large banks and other key financial institutions to symbolize financial assets, such as DJIA stocks,
bonds and real estate O,
Asset tokenization refers to the process of issuing digital tokens on blockchains that represent digital or physical assets, where investors can have fractional ownership.
“This path is moving forward. Traditional financial assets are going to be packaged, tokenized and made programmable, ”Paul Brody, global blockchain leader at EY told MarketWatch in a recent interview. “It’s happening behind the scenes.
Brody said the financial institutions working with EY on the effort “own a very large scale of assets,” although he declined to name the institutions.
Brody is also expecting some traditional XLF financial institutions,
to start offering “an organized selection of DeFi (decentralized finance) services” by the end of this year.
Decentralized finance is an umbrella term for financial products and services that are powered by cryptocurrencies and blockchains without relying on intermediaries. While the middleman is replaced by self-executing computer programs, DeFi services claim to be faster, more efficient, and cheaper.
The tokenization of assets by traditional financial institutions and the potential deployment of DeFi services may demonstrate additional institutional interest in blockchain and cryptocurrencies. Certain hedge funds, high net worth individuals and large GS banks,
have invested or traded cryptocurrencies. Bitcoin BTCUSD,
Recently traded at $ 40,983, down 6.3% in the past 24 hours.
Blockchain technology could open up an “incredible new ecosystem” and provide new profit opportunities for financial institutions, according to Brody.
JP Morgan and Chase JPM,
CEO Jamie Dimon this spring called fintech a “huge competitive” threat to banks as traditional lenders play a smaller role in the financial system, but also said the bank is adjusting, in a April letter to shareholders.
A spokesperson for JP Morgan and Chase did not immediately respond to a request for comment.
However, not everyone is happy with such an adoption, as some people fear that DeFi efforts are centralized, contrary to the system’s initial idea of democratizing finance.
Ajit Tripathi, Head of Institutional Affairs at DeFi Lending Protocol Aave, wrote in a CoinDesk editorial that the real innovation of DeFi lies in decentralization, not in finance.
“With the rare exception of, say, flash loans, any competent quant can map financial innovations in DeFi 1: 1 to a previous financial innovation on Wall Street,” Tripathi wrote. In contrast, “public blockchain technology allows decentralization to work Internet-wide among pseudonymous participants who don’t need to trust or even know each other, and that’s a big deal.” .
David D. Tawil, chairman and co-founder of crypto fund ProChain Capital, told MarketWatch in a recent phone interview that “my hope is that unlike what has happened to the internet, we continue to be decentralized, that it won’t is not controlled by major entities. . “
According to Brody of EY, traditional financial and DeFi ecosystems, which have their own advantages, will ultimately converge in a “competitive battle”.
Traditional financial institutions have a large customer base, knowledge of regulatory procedures, high quality back-end systems, and operating assets, while DeFi protocols have “highly programmable, interoperable, and fast-build functionality,” he said. he noted.
“I am generally very positive about DeFi protocols. The question will be, how much decentralization? Brody said. “I think people will have a choice between levels of decentralization. “