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DeFi and banks: Towards a symbiotic relationship? Evidence of crypto and DLT-related activities of G-SIBs
Journal of Digital Banking,
7
(4),
329-342
(2023)
Abstract
This paper investigates a possible future symbiotic relationship of decentralised finance (DeFi) with the traditional banking sector, with the banking system integrating compliant versions of DeFi in parts of its operations. In particular, the paper indicates empirical trends showing the increasing investment of major global banks in the wider DeFi space through the investment in distributed ledger technologies and the acquisition of cryptorelated entities. The development of compliant tokenisation will be a catalyst for the potential integration of compliant versions of DeFi with banks, and DeFi pools could constitute the currently lacking secondary market for regulated tokenised assets. Repos of tokenised assets in compliant versions of DeFi could also reduce the risk of DeFi as compared with the current use of non-compliant or unregulated crypto-assets as collateral. The integration of compliant DeFi applications by banks as part of their operations would — paradoxically — require a certain level of re-centralisation of DeFi in order to make it compliant and address the long list of important risks observed in current forms of DeFi activity.
Keywords: DeFi; decentralised finance; FinTech; blockchain; distributed ledger technologies; banking; G-SIBs; regulatory framework; crypto-assets
The full article is available to subscribers to the journal.
Author's Biography
Iota-Kaousar Nassr Iota Nassr is a Senior Policy Analyst at the Capital Markets and Financial Institutions Division of the OECD, where she manages the FinTech Experts Group of the Committee on Financial Markets and leads the analysis around the digitalisation of finance. Prior to joining the OECD, Nassr was an Investment Banker, working for the M&A desks of Merrill Lynch and Citigroup in London. She holds an MBA from ESSEC Grande École and an MSc in Accounting and Finance from Athens University of Economics and Business.
Caroline Roulet is an economist and a policy analyst at the OECD in the Capital Markets and Financial Institutions Division of the OECD. She is a French national who received her PhD from the University of Limoges in France. Her research focuses primarily on international capital markets, financial institutions and intermediation, as well as corporate finance. Dr Roulet contributes to the Committee on Financial Markets that engages in global surveillance and analysis of markets and intermediation to assess which policy frameworks are effectively strengthening system-wide resilience to support sustainable and inclusive economic growth.
