Digital Bank + DeFi may become a pivot point levering traditional finance

SILICON VALLEY, Calif., Oct. 10, 2020 /PRNewswire/ -- The release of digital currencies by the People's Bank of China may cultivate users' habit of using personal digital encrypted wallets, which will promote the popularization of block chain digital assets and Defi to a certain degree. Therefore, the GSR Matrix Fund invited Ender Xu (GSR Matrix Fund Managing partner), Bertie (Jackdaw Capital CEO), and Edge Wang(blockchain technology and financial technology expert) to discuss whether the point of integrating traditional and digital finance is dawning.

Abstract

    --  Almost all financial services, such as stock transactions, derivatives,
        mortgages and loans, that only involve the transaction level of the
        industry, have corresponding plans from DeFi. Its transparency and
        feature of permissionless may in fact make the regulatory authorities
        more reassured, so will the users be, who invest with their money, as
        assets are locked through smart contracts, greatly reducing the
        likelihood of moral risks. In fact, online finance is to make such
        financial services civilian on a large scale, but due to the lack of
        transparency of the centralized systems, many moral risks occurred,
        preventing P2P from achieving its original aim. From this perspective,
        DeFi may accomplish these historical missions unfinished by the online
        finance and form a brand-new financial service system. -- Edge Wang
    --  According to my personal judgment, reduced non-friction experiences on
        the part of users, radical fall in the gas fees, full-scale improvement
        of security performance and relatively high return anticipation should
        bring huge influence on traditional finance. The logic behind is in fact
        the fundamental improvement and reform of infrastructure. I believe the
        greatest impact on financial institutions is opposition to shared
        governance. The true genes of DeFi are decentralized and permissionless
        both in terms of technology and philosophy. It takes time to change the
        status-quo, or gradually integrate. Traditional financial institutions
        may lose opportunities at this stage. -- Ender Xu
    --  Main Factors currently in what will make a traditional VC invest in DeFi
        is calculated diversification. Understanding we stand on the precipice
        of fiscal change, economically, politically. Trust is becoming
        increasingly valuable. DeFi poses an intelligent solution. -- Bertie
    --  My personal investment logic in the field of DeFi is technical
        innovation, business logic and algorithm models of projects.The Cheese
        Lending Protocol currently shows me the new possibilities of future Defi
        Lending with the creative mechanism allowing LP token as the collateral.
        One of the groups in real demand of mobility is DEX market-makers. They
        can gain profit from market-making after providing DEX with funds, but
        the voucher of the liquidity pool they get (LP) is a kind of assets
        lacking liquidity--underlying assets, right to earnings and all other
        rights are deprived after selling in the secondary market. Therefore,
        their liquidity terminates due to market making. The only solution is to
        allow them to pledge and loan with LP, similar to the model of pledging
        with stocks and real estates: assets, rights and interests are still
        theirs, but there is new liquidity gained, enabling them to further
        invest in other assets, and redeem assets simply by paying interest.
        This is a real model that improves liquidity. Cheese Bank detects such
        an opportunity, therefore, I propose it as a case here and look forward
        to their development. -- Ender Xu
    --  I think when DeFi and digital banking come together we'll see a banking
        system that runs completely autonomously - without people, without bank
        branches, without lengthy application or legal processes. A system where
        smart contract functionality will allow anyone with a smartphone to
        instantly tap into a wide range of financial services 24/7, 365 days a
        year. -- Bertie
    --  I believe digital banks should have huge advantages to enter the quality
        mainstream tangible assets into the rising DeFi field, as licensed
        exchanges in the field of digital assets or other institutions that can
        issue stable currencies like USDC or GUSD all turn up with identities
        similar to currency exchange institutions of exchanges, applying for
        regulatory licenses in all countries to issue stable currencies. From
        the perspective of digital banks, in turn, digital banks have naturally
        been qualified to operate licensed bank transactions all round the
        world, making it possible to connect with the digital assets field by
        simply adding the condition of permission to issue stable currencies. It
        is obviously a non-financial institution, or a financial institution
        with narrow business scope, boasting much greater advantages in doing
        this. Other transactions such as assets pledge are pretty easy to be
        realized, since this is also allowed in the business scope of banks,
        much easier than accessing to this transaction by a purely digital asset
        institution. -- Edge Wang
    --  Products such as MakerDao are a universal currency for those native
        digital assets users (and investors with digital assets) in a DeFi
        (decentralized finance) wold. Therefore, their limitation is actually
        the overall currency value of their existing digital assets. Current
        digital banks and funds are exploring how to link the huge tangible
        assets and old money outside DeFi to a freer and fairer DeFi platform
        through compliance. I believe only with the appearance of such products
        can DeFi's world atlas become strong enough. ---- Ender Xu

Read the entire interview: https://medium.com/@todefi/defi-makes-vc-gradually-disappear-but-when-combine-with-digital-bank-it-may-become-a-pivot-point-a3a551d41fd6

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SOURCE GSR Matrix Fund