Even as cryptocurrencies seize the popular imagination, complex ideas like NFTs, Web3.0, or Metaverse enter the mainstream consciousness. As regulators balance innovation with prudence, and enterprises take calculated steps to explore the right use cases for the underlying technology, we take a stroll through a few recent updates, ideas, challenges, and possibilities in a decentralized metaverse for financial services.
Five trends shaping enterprises’ blockchain strategy
1- Distributed Ledger Technology and the use cases based on it continue to attract investments at a fast pace.
2022 saw crypto and blockchain funding of more than USD2.7 billion, even before the close of January. The pandemic has not slowed down the momentum that the sector saw in 2021 when venture funding grew over 5X to USD21 billion. This clearly highlights the market’s confidence in the future of blockchain technology. Enterprises can rest assured that blockchain and related technologies have received a resounding affirmation this new year.
2- In particular, Institutional Decentralized Finance (DeFi) infrastructure projects are finding traction.
2021 witnessed projects around permissioned lending pools for KYC’d-only participants, Miner/Maximal Extractable Value (MEV) resistant best execution protocols and decentralized identity. Efforts on layer-2 scaling, that enhance scalability and reduce costs indicate a focus on enterprises’ needs. The ecosystem is clearly keen that enterprises’ concerns are addressed. Trends forecast reports for 2022 reflect the market’s confidence that these actions are in the right direction.
3-FS Enterprises go ETH(Ethereum), Corda, or Hyperledger.
Of all crypto in DeFi, ETH accounts for 77% of value locked. Web3 needs ETH to scale. Endgame promises a platform with 100,000 transactions a second, one that addresses most use cases. A large share of startups have also committed to ETH for the enterprise model. An ETH roadmap will enhance scalability without compromising security or decentralization while aligning with an enterprises’ needs. R3 Corda has also made significant advances in market adoption. Hyperledger is another early mover in enterprise blockchain. That said,NFT rush and the longer wait for endgame suggest ETH/EOS has to compete with the likes of Solana.
Startups’ choices of blockchain technologies
4- Enterprise projects consolidation: Future may yet be multi-chain, not cross-chain.
Investor confidence in the future of enterprise blockchain is high, as evidenced by the number of consolidation initiatives prevalent in the industry. For instance, JP Morgan’s sale of Quorum to (and investment in) ConsenSys, owner of wallet browser extension MetaMask, which boasts 20 million users, which in turn is a service provider to Hyperledger Besu (Enterprise ETH client) and the fact that the likes of HSBC Bank have made sizeable investments in ConsenSys.
Singapore trade finance startup #dltledgers recently switched its enterprise blockchain from Hyperledger Fabric to R3 Corda. Earlier, the fraud mitigation platform MonetaGo made the same switch. DTCC, Deutsche Börse, Nasdaq, SIX, MarcoPolo, Contour, SWIFT, Paypal, SIA, Worldpay, and more chose R3 Corda, given its focus on regulated markets use cases. Emerging patterns in exchanges, trade finance, and payments may have pointers to ease new adopter enterprise’s decisions on the platforms to pilot with. Yet, the security limits of bridges in blockchain in financial services may mean that multi-chain ecosystems prevail over cross-chain.
5-Distributed Ledger tech offers enterprises exciting new business models:
- Web3, the next generation of web, creates new-age enterprises. Open, trust-minimized, decentralized networks, decentralized applications (DApps), and protocols that offer digital services such as compute, storage, bandwidth, finance (DeFi), and identity with no intermediaries, enable a new paradigm. This new paradigm emphasizes on the decentralization of power and decision-making, permits personal ownership of ideas, assets and digital identities, and in the process, creates new markets, business models, opportunities, and enterprises that capitalize on the opportunity.
- Non-Fungible Tokens (NFTs) have come to be the most dominant representation of the decentralized ownership paradigm in popular culture. They have attracted a new generation of participants into the crypto world, which has created an exciting large addressable market for the many new offers for this sector.
- Metaverse, a term used to imagine a future made up of persistent, shared, 3D virtual identities and virtual spaces connected to create a virtual universe, may well transform how we engage with each other and with the various institutions that enhance our lives.
Are regulators ready for blockchain?
24 national governments, including the US, the UK, and Canada, are actively researching Central Bank Digital Currencies. 13 governments (including Brazil, China, and Hongkong) are in the midst of development. 23 governments and international bodies (including Australia, France, Singapore, Japan, and the European Central Bank) have launched pilot projects. These projects have translated to better appreciation among regulators of the possibilities of this technology. Tax authorities across major nations have evolved their approach to transactions in crypto assets, with a greater degree of consistency emerging with time in their views on the market.
Tax treatment of digital assets by various countries
The road to web3 for Enterprises!
Many financial institutions, including Barclays, Citigroup, HSBC, Goldman Sachs, JP Morgan, UBS, and more are pursuing blockchain programs ranging from cryptocurrency to insurance, onboarding to reporting, trading to settlement, digital identity to keep health records safe. Many are experimenting with private chains, including firms like ConsenSys Quorum, BNPP, Deutsche Börse, JP Morgan, Santander, Société Générale, and more. It’s the start of what’s perhaps a long journey, of untold decentralized riches, or false promises. Firms will need to understand the landscape better before they can choose the roads to take in a metaverse. This call for a longer conversation. Do reach out to us with your views at @HCLTech FS Solutions.