Regulation,  Technology

As DeFi skyrockets, Euro financial institutions are taking an interest

Fully 86% of traditional firms are implementing or at least considering blockchain-based decentralized finance technology, says Boston Consulting Group

More than four out of five traditional European financial institutions now see decentralized finance, or DeFi, as a technology worth implementing or at least considering.

That’s according to “The Sudden Rise of DeFi,” a new study of 411 insurance, banking, and trading firms released by Crypto.com and Boston Consulting Group’s IT-focused BCG Platinion on Oct. 22.

Euro financial institutions eye DeFi
Four fifths of European banking, insurance, and trading firms are at least assessing DeFi (Photo: Crypto.com)

Specifically, 86% are implementing or assessing services built on a decentralized framework.

Noting that the value locked into DeFi has grown a massive 1,500%, to $8 billion, the report concluded that the “ability to borrow funds, take out loans, deposit funds into a savings account, or trade complex financial products, all without asking anyone for permission is gaining traction.”

Larger firms are more aggressively moving into DeFi, with 71% of those with a balance sheet above $13.1 billion (£10 billion) implementing or assessing the technology, compared with 51% of those below $131 million (£100 million).

“The research shows that DeFi’s adoption is not limited to just the blockchain industry,” said Crypto.com co-founder and CEO Kris Marszalek. “Traditional financial institutions of all sizes are viewing DeFi not as a competitive threat but rather as a valuable instrument to delivering more decentralized, efficient financial services.”

Of the companies surveyed, 38%—and 61% of the biggest firms—are turning to DeFi to “facilitate faster, more secure payment processing services,” the study found. 

Two thirds of the respondents—67%—believe DeFi will open up new revenue streams, while 70% believe it can make financial transactions faster and cheaper.

“As markets evolve towards decentralization, there will be a growing demand for approaches like DeFi which can provide a more efficient and more open way of banking, trading and investing,” concluded Kaj Burchardi, managing director of BCG Platinion. “It is encouraging to find that financial institutions are already seriously, and strategically, collaborating with the crypto community to begin building a new generation of governance and technologically resilient solutions that will make financial services more accessible.”

Work to be done

That said, the report found serious concerns about the lack of regulation, with 61% saying it gave them pause—a concern that grew worse for companies with larger turnover or more assets under management.

Almost the same number—60%—called the lack of recovery mechanisms worrisome.

Security concerns over fraud is another challenge, with 70% saying it is preventing company-wide adoption of DeFi.

Still, the risk of vulnerabilities in smart contracts that put assets at risk is the biggest concern survey participants had with DeFi.

“There is still quite some progress to be made in order to bring DeFi into the mainstream, especially in security and compliance,” Burchardi said.

This is something the European regulators recognize. The European Commission last month unveiled “ambitious” proposals to regulate cryptocurrency assets and service providers. Unfortunately, it also predicted it would take four years to get these regulations in place.

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.

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