The new world of meta finance and its yet to be tested efficiencies

Christopher Edmonds and Ashwini Panse
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Christopher Edmonds: Chief Development Officer, ICE, USA
Ashwini Panse: Chief Risk Officer, North American Clearing, ICE, USA

Journal of Securities Operations & Custody, 2023, vol. 15, issue 1, 68-81

Abstract: Technology has been a long-standing catalyst for change, innovation and the emergence of new business models. As technology evolves and matures, the financial services industry revisits its current processes and capabilities to assess if leveraging more modern technologies can drive additional client and business value. There are some proposed use cases for distributed ledger technology (DLT) that propose disintermediating the entire financial industry. There is no doubt the broader financial industry agrees DLT presents an opportunity to shape the future vision of capital markets and recognises the value inherent in the shared DLT platform that can build security, privacy and auditability into every financial transaction and could potentially eliminate costly reconciliation. However, DLT, like any emerging technology, must be thoroughly vetted through rigorous testing. Moreover, regulators across the globe are promoting responsible innovation and fair competition among markets and market participants. And for innovation to be responsible and competition to be fair, it must comply with regulations. Meta finance aka decentralised finance (‘DeFi’) that runs on decentralised infrastructure, remains immature and volatile, with several economic, technical, ethical and public policy issues still waiting to be addressed. DeFi enthusiasts claim that meta finance is doing to money what email did to postal services, with a promise to provide a secure financial platform that is open to anyone with access to a computer and an internet connection. It has the potential to transform global finance, but activity to date has focused on the community of digital asset owners. DeFi offers efficiencies driven by automation and disintermediation, powered by blockchains and smart contracts with a vision of a more efficient payment system, with instant transactions and lower costs no matter where on the globe one is located. Its efficiencies and safeguards, however, are yet to be tested and the broader community feels safe and secure with the belts and braces traditional finance offers today. DeFi is not devoid of risks relating to high volatility, market manipulation, fraud, illicit finance and lack of governance, which collectively could severely damage market integrity and investor confidence.

Keywords: decentralised finance; digital assets; innovation; traditional finance; distributed ledger technology; smart contracts; blockchain (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2023
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