GTreasury Webinar – Modern Cash Management & Forecasting

23-01-2023 | treasuryXL | GTreasury | LinkedIn |

Cash flow and working capital are the lifeblood of your business. How are you protecting your cash positions and reducing risk in these times of increasing business volatility?

Source: GTreasury

Today’s digital cash visibility and forecasting solutions provide amazing opportunities for companies and their decision-making processes. In this webinar, we provide an in-depth look at how these modern solutions help you, your department, and your company reach your full potential.

 

Jake Fernandez, GTreasury – Product Manager, will discuss:

  • The pros and cons of common cash forecasting practices using spreadsheets and ERPs.
  • How a modern treasury management platform can provide immediate value for cash visibility and forecasting.
  • How you can benefit from these applications.
Sign up today!

How to get into FinTech? A Career Guide for 2024

19-01-2023 | Pieter de Kiewit | treasuryXL | LinkedIn | If you are interested in learning about FinTech and how to get into the industry, there are a few things you may want to consider. With my focus on corporate treasury, we are in close contact with various Fintech companies who ask us on a regular basis to support them in their recruitment. We learned these companies have specific requirements.

Read more

Live Expert-Led Session | Your Currency Management Toolkit for 2023

17-01-2023 | treasuryXL | LinkedIn | Join Kantox and treasuryXL in this expert-led conversation on the future of currency management as we uncover the key treasury priorities and opportunities for the new year.

Read more

2023 Treasury Priorities & Opportunities Survey Results

17-01-2023 | treasuryXL | TIS | LinkedIn |

Now in its 2nd consecutive year, TIS is excited to release the findings from our 2023 Treasury Priorities & Opportunities Survey. Having run throughout the course of Q3-Q4 2022, our research again captured responses from hundreds of U.S. finance and treasury practitioners operating at companies of all sizes and industries. The goal was to capture their perspectives on a range of items including the ongoing adoption and use of finance and treasury technology, as well as upcoming staffing plans, strategic and operational expectations, and overall trends occurring in the space.

Source

This blog serves as a summary overview of the key results and findings from TIS’ 2023 Treasury Priorities & Opportunities Survey. To access the full results and analysis, you can download the extended whitepaper here.

  • Overall Composition of Treasury Operations
  • Treasury Staffing & Professional Development Plans
  • Treasury Technology Investment & Focus
  • Cash Forecasting Preferences & Workflows

This image provides the demographics related to TIS' recent 2023 treasury industry survey.

In total, over 250 practitioners responded to this year’s survey, which consisted of roughly 30 questions. All respondents held roles in either treasury or finance. In addition, all respondents were operating at companies with headquarters in the U.S., but most maintained an active international presence.

In terms of company size, 34% of represented companies had annual revenues of $100M – $1B, and another 34% had $1B – $10B annual revenue. 14% had revenues of over $10 billion, while 18% were under $100mm.

Regarding industry representation, construction and manufacturing firms accounted for over 27% of all respondents. Companies from the software, education, insurance, retail, and automotive sectors collectively accounted for another 40%.

In aggregate, our 2023 research initiatives are representative of an appropriately diverse spread of treasury and finance practitioners from a variety of company sizes and industries.

 

Treasury Responsibilities Increase as Staffing & Technology Investments Remain High 

The findings from our 2023 research highlighted that despite strong economic headwinds and market uncertainty, a significant number of treasury teams are still expecting to add more staff and adopt new technologies in the year ahead. In fact, while 48% of teams expected to add more staff, only 3% planned to reduce their headcount. Similarly, over 50% of respondents plan to invest in new cash management and payments-related technologies.

This should be taken as generally reassuring news for practitioners, especially given the wide-ranging budget and staffing cuts that have occurred within many U.S. companies and institutions in the past few months. However, these new technology and staffing additions are also being coupled with a new set of responsibilities and expectations from business leaders that may place greater strain on practitioners. These heightened expectations were clearly evident in our research, with 77% of practitioners indicating their list of responsibilities would increase in 2023, while just 2% believed their workload would be reduced.

Regarding the nature of these new responsibilities, it appears that many treasury teams are being relied upon to execute and contribute towards more “strategic” internal functions. Based on the data, 57% of practitioners indicated that the strategic role of their treasury group would expand in 2023, while just 4% indicated a decrease. Going a step further, when asked whether treasury was viewed as more “operational” or “strategic” by management, practitioners were evenly split in their perspectives at 48% strategic and 52% operational, respectively.

Treasury's strategic impact is projected to grow in 2023 based on recent industry survey data.

Looking deeper into the growing influence and responsibility of treasury, another interesting finding was that most treasury teams seemed to exert heavy control over their company’s AP and AR operations, either directly or indirectly. On average, 69% and 67% of treasury groups maintained some level of control over these operations, with little deviation between companies of different sizes and industries.

 

Cash Forecasting is a Top Priority for Treasury in 2023 

Although cash management and forecasting operations have long-been standard treasury responsibilities, data shows that practitioners have been placing an even greater focus on these operations over the past year.

Since early 2022, several major U.S. corporate treasury studies including AFP’s 2022 Strategic Role of Treasury Survey and Strategic Treasurer’s 2021 Treasury Perspectives Survey saw cash management, forecasting, and working capital projects ranked as top priorities for treasury teams. Our 2023 research corroborated these results with data showing cash management technology being the top priority for new software investments over the next year. In addition, cash management skillsets were listed as the most emphasized area of professional development focus for treasury teams in 2023.

Turning to cash forecasting, one primary focus of our research was learning more about the various forecasting workflows and strategies leveraged by treasury groups and companies of different sizes and industries. At a high level, we found that nearly half of survey respondents used a TMS to produce cash forecasts, with 20% leveraging an ERP and nearly 30% relying on Excel Spreadsheets. While Excel is still used predominantly by smaller teams, the use of TMS and ERP products was much more popular for companies with $500mm+ in annual revenue.

Cash forecasting trends for treasury in 2023 based on company size.

Regarding the preferred forecast horizon, 27% of teams focused on monthly forecasts, while 38% were prioritizing weekly analysis and 25% daily. Generally, smaller companies were only half as likely to conduct daily forecasts compared to larger firms, but 2x more likely to conduct quarterly forecasts. On the other hand, larger firms were more likely to conduct forecasts across numerous time periods including daily, weekly, and monthly. In aggregate, weekly forecasts were the most popular analysis period across all sizes and industries.

As a final point on forecasting and in-line with the broader digitalization shift that has been occurring in treasury for years, the top priority for practitioners when improving their forecast process revolved around either migrating away from legacy Excel-based processes or upgrading their existing software to achieve greater accuracy and automation.

To learn more about this research and for extended results and analysis, download the full whitepaper here. You can also watch our recent results webinar that features commentary on the key survey themes by a panel of industry experts.

Hedging Strategies 101: Layered Hedging

16-01-2023 | treasuryXL | Kantox | LinkedIn |

Avoid the cliff and protect your cash flows! When volatility is at an all-time high, the right currency hedging strategy can set you apart. And save your business from an uncertain future. Transform your FX risk with a layered hedging strategy that will help you withstand unexpected changes in FX markets and protect your margins.

When implementing an FX hedging program, finance professionals responsible for risk management must be aware of the ins and outs of their business. This will be the starting point to uncover potential gaps in the hedging strategy and also opportunities to implement the program that fits perfectly.

Let’s understand how a layered hedging program works and how it could fit with your FX strategy.

Why is a layered hedging strategy important?

Layered hedging programs allow CFOs and Treasurers to handle the related problems of FX markets volatility, shifting interest rate differentials, and less-than-stellar cash flow visibility.

The goal of a layered hedging program is to smooth out the hedge rate over time to lower the variability of company cash flows. Additionally, a layered hedging program that is created from scratch can deal with the problem of forecasting accuracy.

Instead of ‘protecting’ an FX rate, layered hedging programs build the hedge rate in advance. And because hedges are applied in layers, in a progressive manner, you do not need a 100% accurate forecast at all.

Who can benefit from a layered hedging program?

Not all hedging programs are the same, as they tackle different goals for managing FX risk. Before you implement a layered hedging program and start dedicating time and resources, you need to think about certain conditions. These relate to your current business model -including pricing structure, the FX exposure you want to hedge, cash flows, etc.- and your company’s specific needs when it comes to FX hedging.

This type of hedging program is best suited for firms that need or desire to keep steady prices not only for one individual campaign/budget period, but for a set of campaign/budget periods linked together. In layered hedging:

(a) Prices are usually not FX-driven, meaning that the FX rate plays no role in pricing strategy.

(b) The impact of the ‘cliff’ -a sharp adverse fluctuation in currency rates between periods-, cannot be passed on to customers at the onset of a new period.

(c) The exposure to hedge is a rolling cash flow forecast for a set of periods linked together.

Unlike other cash flow hedging programs, like static hedging where prices are either frequently updated or updated at the onset of a new budget period, pricing does not act as a hedging mechanism in layered hedging programs. And that puts cash flows at risk, so a solution must be found elsewhere.

In comes the star of layered hedging, smoothing the rate.

Smoothing the hedge rate over time

The secret of achieving a smooth hedge rate over time is to create commonality between trade dates for a given value date. Take, for example, a 12-month layered hedging program. The value date of October is hedged in 12 different months, from October in the previous year down to September.

Next, the value date of November is hedged in the same manner, starting in November of the previous year down to October. And so on and so forth. Note that the two value dates -October and November- share eleven out of twelve trade dates with the same spot rate. That’s the concept of the mechanically created commonality that lies at the heart of layered hedging programs.

However, the process of ‘layering the hedges’ is not as simple as it may seem at first glance. There are some common challenges that Treasurers and CFOs face when manually performing FX risk management activities.

Common challenges in layered hedging

Before crafting the optimal layered hedging program for your business, there are three common challenges that need to be considered. These are crucial to the success of the FX hedging strategy. And they relate to the configuration of the program, the intrinsic constraints of the business, and the level of automation currently available to the team. Let’s take a closer look.

  • Configurations. Depending on risk managers’ secondary objectives, there are many possible configurations for a layered hedging program. Some of these configurations regard:

(1) The degree to which the hedge rate is smoothed, for example by adjusting the programs’ length.

(2) The optimisation of forward points. For example, hedge execution can be delayed if forward points are ‘unfavourable’.

(3) The distance between the average hedge rate and the spot rate.

  • Constraints. Each treasury team may face its own set of constraints, some examples include:

(1) The degree of forecast accuracy.

(2) Possible limitations imposed by liquidity providers who might not let a firm trade forward contracts that expire, say, more than two years out.

  • Automation. Needless to say, a manually executed layered hedging program can be pretty demanding, especially if many currency pairs are involved. We’ve seen companies running such programs with the help of enormous spreadsheets. This only creates two different operational risks:

(1) Spreadsheet risk, including data input errors, copy & paste errors, formatting and formula errors.

(2) Key person risk, as only a handful of individuals understand the formulas that underpin the ‘monster’ spreadsheets.

Eliminating the uncertainty

Layered hedging programs are a powerful FX risk management tool to face the trifecta of problems created by a highly volatile scenario. These hurdles include currency risk —including the risk of a cliff, as we saw recently with the GBP-USD exchange rate—, shifting interest rate differentials, and less-than-stellar cash flow visibility.

Now that you know the ins and outs of layered hedging, you can start transforming your FX risk management workflow. And forget about the challenges that may come when facing uncertainty. That’s a pretty powerful advantage in a scenario of pandemics, inflation and war!

Optimal hedging strategy with Currency Management Automation

If you want to leave behind the challenges of manual work when it comes to currency risk, consider implementing automation software.

Kantox is the only solution that streamlines the currency management process through powerful automation of the entire FX workflow. This enables businesses to reduce currency risk, protect profit margins and price more competitively.

Who should “give a push”​ and work on APIs?

12-01-2023 | treasuryXL | LinkedIn |

A new year, a new edition in which we discuss the latest treasuryXL poll results. It is encouraging that once again many treasurers participated in the vote. We examined the voting patterns of treasurers and gathered the perspectives of experts Jack Gielen and Konstantin Khorev on the topic of APIs in treasury.

Source

Who should “give a push”​ and work on APIs?

It is commonly understood that APIs are prevalent in today’s digital landscape. However, corporate treasurers can also reap benefits from API technology and its advantages. If you are unsure about the importance of APIs in Treasury or need more information, you should definitely watch the recording of the joint webinar together with Cobase on the future of APIs. It is encouraging that once again many treasurers participated in the vote. The current treasuryXL poll remains open and we encourage you to continue to have your voice heard! You can cast your vote on this link.

Question: Who should “give a push”​ and work on APIs?

First observation

That looks quite straightforward: partners should join forces. Do the treasuryXL experts agree, or what is their view on this?

View of treasuryXL experts

Jack Gielen (Cobase)

Jack voted for the option that partners should join forces.

Geen alternatieve tekst opgegeven voor deze afbeelding

 

“APIs and the benefits are clearly on the map but there is also an understanding that there is still work to be done before those benefits will really be realised”

It is good to see that regarding the results of this poll, the market agrees that the success of corporate APIs and OpenBanking requires cooperation and cannot be dictated by 1 party. This means Treasurers clearly understand the complexity of the playing field. At the moment, although there are many initiatives by individual parties, there is a need to create a good partnership where the whole eco-system works together

The main benefits that APIs could realise if banks and companies were to work together are:

  • Better integration of banking services into customers’ own internal systems,
  • Easier connection to new banks and expansion of banking services
  • Better and more real-time data that can be converted into actionable information

These benefits translate into being able to use the systems the treasurer has chosen more efficiently and better, more up-to-date insight into status, exposures and required actions.

Recently, Cobase set up the webinar “The Future of APIs” in collaboration with treasuryXL to discuss this topic. I was particularly impressed by the level of knowledge Treasurers have gained over the past year which was also reflected in the questions. APIs and the benefits are clearly on the map but there is also an understanding that there is still work to be done before those benefits will really be realised. Ultimately, the priority with the end customer, the treasurer, will determine how quickly other market players act.

Konstantin Khorev

Konstantin voted for the option that partners should join forces.

Geen alternatieve tekst opgegeven voor deze afbeelding

 

“By working together, we can achieve a more efficient and effective treasury management system.”

I agree with the majority view that the implementation of APIs in the treasury field should be a collaborative effort. Banks will play a key role in implementing these changes, but it is also crucial for corporates and TMS providers to set and specify the requirements. This ensures that the solutions being implemented align with the unique needs and goals of each individual corporate, and TMS providers can develop the tools and services necessary to support these needs. By working together, we can achieve a more efficient and effective treasury management system.

Recently, my latest article on this topic was published on treasuryXL. In it, I try to make it plain that APIs are a nice and easy solution, although they come with some limitations and challenges. At the same time, I believe that the future of bank connectivity lies in API technology. What do you think?

How can fintech rise to the challenge of AML compliance?

12-01-2023 | treasuryXL | Refinitiv | LinkedIn |

A new white paper from Refinitiv, produced in collaboration with global consultancy, FINTRAIL, unpacks some of the key financial crime-related challenges facing fintech today, and explores how companies in this evolving sector can best manage AML compliance.

 

  1. A new white paper explores three key challenges currently at play in the fintech space.
  2. Fintech priorities are balanced between operational efficiencies, positive customer experiences and regulatory compliance.
  3. Discover more in the paper from Refinitiv and FINTRAIL, which is based on interviews with experts in different international fintech.

For more data-driven insights in your Inbox, subscribe to the Refinitiv Perspectives weekly newsletter.

Fintech and illicit activity

The fintech space is highly dynamic and agile, but this industry of innovation and opportunity is substantially impacted by a constantly evolving financial crime landscape.

Emerging technology, quickly adopted by fintech and leveraged to make every facet of our lives easier, is similarly harnessed by financial criminals seeking to engage in illicit activity.

Criminals seeking to evade controls are resourceful, quickly making used of new opportunities to conduct illicit activity

New findings from Refinitiv and FINTRAIL – based on interviews with experts in different fintech across a range of geographies – reveal the top challenges faced by the fintech and focus on three key challenges currently at play in this dynamic space.

Read the white paper: AML challenges for fintechs: Insights for the future

What are the three key challenges facing fintech?

Online fraud

Fraud continues to grow across the globe and is a key pain point highlighted by the fintech we spoke to.

One of the top fraud-related challenges currently in play is application fraud, where sophisticated financial criminals typically impersonate individuals or make use of synthetic identities.

Illicit actors are leveraging powerful technology to do this – manipulating information, tapping into advanced graphics techniques and exploiting vulnerabilities wherever possible.

In the UK, reported losses totalled £2.35bn in 2021. In the U.S., 2.8 million consumers made fraud reports in 2021.

In the United Kingdom, where fraud is the most commonly experienced crime, reported losses totalled £2.35 billion in 2021. In the United States, fraud trumps all other proceed-generating crimes and 2.8 million consumers made fraud reports in 2021.

 – AML challenges for fintech: Insights for the future

The fintecs we spoke to are responding in a range of ways, from providing better customer education and raising awareness to protect vulnerable customers, to ramping up collaboration initiatives between the private sector, governments and law enforcement agencies.

Digital assets and cryptocurrency challenges

Crypto continues to grow, and hand-in-hand with this, regulation within the sector is also increasing.

Against a highly dynamic situation, where products and technologies are evolving at speed, virtual asset service providers (VASPs) need to keep pace with a changing regulatory curve, especially when it comes to complying with differences across jurisdictions.

Even fintech that don’t bank digital assets need to stay acutely aware of the crypto-related risk as they may interact with VASPs, and consequently, need to understand potential regulatory obligations.

Sanctions

Sanctions are another key challenge for fintech, and little wonder given the global sanctions landscape that has unfolded throughout most of 2022.

AML teams have been scrambling to keep pace with the exponentially rising volume of sanctions, especially – but not only – those related to the Russian invasion of Ukraine.

Not only has the absolute volume of sanctions been increasing, but individual sanctions have been becoming increasingly complex, leading to rising compliance costs for fintech as well as their traditional financial services industry counterparts.

Non-compliance can have far-reaching consequences – ranging from financial to reputational and more.

Sanctions are our highest priority and receive dedicated 24/7/365 attention

A best practice response

The fintech we spoke to are acutely aware of the need to protect against widespread illicit activity and of the requirement to remain compliant at all times.

At the same time, they operate in a lean industry of constant change, exponentially growing customer bases and a breakneck pace of business.

This means that building a best-practice response to financial crime must be carefully considered, efficient and effective.

Leading-edge AML technology, robust data and skilled compliance professionals – whether in-house or outsourced – can offer the solution to help manage and mitigate financial crime risk and the key challenges outlined above.

High on the list of fintech priorities is striking the all-important balance between operational efficiencies, positive customer experiences and regulatory compliance – and with the right data, technology and human insights, this delicate balancing act can be maintained.

Read the white paper: AML challenges for fintechs: Insights for the future

APIs for Corporate Treasury: Not only efficient but also easy

10-01-2023 | Konstantin Khorev | treasuryXL | LinkedIn | APIs, or application programming interfaces, have revolutionized the way that corporate treasury departments operate. Getting timely information about cash balances and transactions running through your bank accounts is crucial not only for treasury but also for other corporate functions: A/R, A/P, business operations and other departments

Read more

Interview | 7 questions for Adesola Orimalade, Seasoned Treasury Professional

09-01-2023 | treasuryXL | Adesola Orimalade | LinkedIn |

 

Meet our newest expert for the treasuryXL community, Adesola Orimalade

Adesola is one of the few Treasury professionals around who has worked in both banking and corporate treasury, across various industries and in both Africa and Europe.

Since walking into his first role over a decade ago, he has built his competence in many areas of treasury including cash management, treasury operations and operational/liquidity risk management.

Aside from his professional background Adesola is passionate about using his professional knowledge and expertise to support voluntary organisations that operate within his areas of interest (homelessness, poverty, climate change etc). He currently serves on the board of a U.K. charity.

 

We asked Adesola 7 questions, let’s go!

INTERVIEW

 

 

1. How did your treasury journey start?

 

Having obtained a diploma in Town and Country planning and a first degree in Estate Management, my desired career path was to work for any of the regional or multilateral agencies devoted to development finance, urban renewal, housing etc. Growing up I had seen the slums in cities like Nairobi, Johannesburg and even Lagos. I wanted to make a difference.

Life however had a different plan for me, I started working in international banking operations at Citibank purely by accident.

It was during my time in international banking that I was first introduced to Treasury. Trade Finance as you know has a lot of opportunity to interface with Treasury and whether that’s in terms of arranging FX for importers to enable them to pay for machinery or raw materials purchased from abroad or issuing an advance payment guarantee on behalf of a contractor.

Later on I joined Standard Chartered Bank as the pioneer head of trade finance in Nigeria and as it was a small team I also served as back up to the treasury operations manager whenever she was away. It broadened my exposure to banking treasury as I got involved with managing risk across the front, middle and back office functions including taking responsibility for the confirmation and settlement of deals, position reporting and so on.

It wasn’t until 2005 however that I got into the corporate treasury which was again purely by accident. A large telecommunication service provider was seeking to enhance their corporate treasury and someone recommended me to the CFO. I was offered the deputy head of treasury role and was promoted into the Treasury Manager shortly thereafter.

That role was to fuel my passion for Treasury and although I had enjoyed my career in international trade, I wanted to build my future career path within the Treasury space.

 

2. What do you like about working in Treasury?

 

As biased as this may sound, I believe that Treasury sits at the center of an organization, and we are therefore a significant player in many of the major decisions required especially those with financial implication.

That importance of Treasury and the ability to make a positive impact within the organization is what I really like about Treasury.

In addition, I also enjoy the fact that Treasury interfaces with a lot of internal and external stakeholders. Building and nurturing those relationships is also something I enjoy about working in Treasury.

Finally the treasury is impacted by a lot of socio-economic issues external to an organization. I enjoy being informed. I enjoy current affairs. I enjoy reading and understanding the world from an economic, social, environmental and political perspective. It is great to be in a career where my passion can relate with my day to day activities.

 

3. What is your Treasury Expertise and what expertise gives you a boost of energy?

 

I view myself as a Treasury Generalist given that I have worked in both banking and corporate treasury. I have had the opportunity of working in organisations where I had responsibility for the typical front, middle and back office treasury functions.

The areas that give me a big boost however are Cash/Liquidity Management and building cash forecast models/tools, Working Capital Optimisation/Management, building greenfield treasury teams and/or functions as well as developing existing treasury teams and/or process re-engineering.

 

4. What has been your best experience in your treasury career until today?

 

When I left Nigeria to relocate to the United Kingdom, I wanted to continue building my career in Treasury but the response from my looking for roles was ‘you lack U.K. Treasury experience’.
I was excited when I got my first role in Corporate Treasury and when I look back now my best experience is that I have been able to build my career twice in a lifetime on two different continents.
Very few people can say that .

 

5. What has been your biggest challenge in treasury?

 

Successfully managing the treasury function for an online travel company during the recent covid pandemic comes easily to mind. This is bearing in mind that the travel/airline industry was one of those that was significantly affected by the local and cross border restrictions that were introduced globally.

 

6. What developments do you expect in corporate treasury in the near and further future?

 

I think the recent experience from the pandemic means that businesses would continue to focus on cash visibility, liquidity and financial risk management and how technology can be used to achieve better cash forecasting.

 

7. Is there anything that you would like to share with our treasury followers that they must know from you?

 

Over the last couple of years I have been trying to get more young people involved in treasury; especially young people from ethnic minorities in the U.K and across Europe.

On one level treasury professionals can come across as being all technical and number crunchers so the idea is to show that the profession is all inclusive.

I have been to take that message to various institutions within Europe, sharing with them “What a day looks like in the life of a treasurer”. I ran workshops for that purpose at the University of Nottingham Business School and Cologne Business School.

 

Want to connect with Adesola? Click here

 

Thanks for reading!

 

 

Kendra Keydeniers

Director Community & Partners, treasuryXL

Main trends in blockchain and crypto in 2023

05-01-2023 | Carlo de Meijer | treasuryXL | LinkedIn |

Turning back from our almost one month stay during November in South Africa, our beloved travel country, I was heavily chocked by the events on the crypto markets. During our stay I had promised my wife not to follow the news in these areas. But looking at internet I read the various articles and blogs on the FTX crypto exchange collapse and the negative reactions throughout the crypto space. These events will of course have their impact on the various trends in the blockchain and crypto markets in 2023 and beyond. So let us start.

By Carlo de Meijer


1. The crypto markets will further undergo the impact of the recent FTX collapse

Meanwhile the shock waves of the collapse of one of the biggest crypto exchanges make it still feel throughout the whole crypto sector. It affected the credibility and trustworthiness of crypto as a reputational asset. It also brought the dangers inherent in the cryptocurrency space, cementing the vision of an insecure landscape and acts as a barrier to the growth of the industry.

This time trust has fallen to an all-time low greatly reducing the interest among retail investors as well as institutions and financial players alike in the crypto markets,  causing many crypto currencies to fell sharply.

It also caused an increased number of crypto firms being crashed or confronted with liquidity problems, while other distressed companies could be entrained by the fall of FTX. As a result the total crypto market capitalization has dropped from $ 3 tn  to $821 bn as of the end of November.

Expectations are for a new tough and volatile 2023 for many in the crypto industry. Investors remain much more reluctant to enter the crypto market as long as there is no clearness on crypto regulation. This will heavily restrict the sprawling crypto ecosystem known as decentralized finance (DeFi) as well as the NFT market, that were booming segments in recent years. As a result a growing number of crypto firms will get into trouble.

2. The collapse will pop up the quick introduction of stricter crypto regulation

Triggered by the events on the crypto markets, more stringent regulation will rise much sooner than later to prevent events like the FTX collapse and limit the misuses in the crypto markets. Regulatory authorities are now urgently working on stringent regulations of the largely unregulated crypto world. And that for various reasons. The FTX collapse underlines the risks and  dangers of the unregulated crypto markets faced by consumers inherent in the crypto currency space. Given the crypto industry’s inability to self-regulate, it emphasized the need for tighter supervision and clear and more stringent regulatory frameworks. Regulators around the world will intensify their work in 2023 and come up with tougher rules for crypto companies. Aim is to meet the various risks and challenges of the crypto industry, including cryptocurrencies, crypto assets, stable coins, DeFi, NFT, lending and staking etc. but without frustrating or harming technology developments.

These rules should protect investors in crypto products and should ensure that crypto firms are more compliant and more transparent to act in a responsible way. Regulators should thereby look more closely at account balances and reserves at centralized crypto exchanges. This should ensure consumer protection, making crypto companies more transparent, while improving disclosures and risk awareness within the sector.

3. We will see the process towards an international regulatory framework

Regulators worldwide are expected to work more closely together to deliver a clear and effective global regulatory framework and supervision for crypto markets including crypto currencies to make crypto regulation effective. Without global coordination, even comprehensive local laws will do little to prevent cross-border regulatory arbitrage and the potential abuses. International institutions like BIS, IMF, G7, G20, the BIS, the World Bank and others are messaging that international regulatory collaboration and a cohesive regulatory framework  is urgently needed. They are prepared to take the lead.

4. As well as earlier than expected introduction of CBDCs

These developments on the crypto markets will also trigger central banks worldwide to accelerate their process of developing and implementing their own CBDC. In 2022 we observed increased interest in the concept of CBDCs in a growing number of countries worldwide. More than half of central banks all over the world are now exploring their potential as they could offer several benefits. Most central banks thereby already moved beyond conceptual discussions and are either in the researching, testing or deploying stage of the process. There are already CBDCs that have gone live.

This process will further continue in 2023 when we will see a growing number of CBDC projects, triggered by the recent developments in the crypto market. This will also initiate more central banks an earlier than expected introduction of their own CBDC. Thereby there will be growing collaboration worldwide supported by international organisations like IMF, BIS  etc. This may indicate another viable field for blockchain growth.

5. Technology innovations in the crypto market will continue to expand

It will not mean the end of the sector. Crypto markets such as DeFi and NFT may revive when new and more stringent regulation will have been implemented. Both the Defi and NFT markets are expected to further develop with the help of innovative developments, including tackling the main security issues.

a. The DeFi market will further innovate
We will see more technological innovations in the DeFi market, leading to more complex and interesting applications. These may include the creation of new digital assets and online payment systems, including utility tokens, digital shares, natural asset tokens, stablecoins, etc.

Next year will also likely bring more traction for use cases like self-custody wallets, synthetic assets, and prediction markets. And Improvements in the decentralized finance (DeFi) sector like the protocol Compound’s version (v)3 and the arrival of the zero-knowledge (ZK) ecosystem continued regardless. New infrastructural developments will continue such as the arrival of decentralized perpetual exchanges and  regulatory-compliant platforms that connect traditional finance (TradFi) to DeFi.

b. The NFT market is expected to develop further technologically and creatively
NFTs, also known as non-fungible tokens, gained great popularity since 2021. In the past few years there has been a lot of talk about crypto games and crypto collectibles with the advent of NFTs. With this new asset class, there has been a shift in the way these assets can be used.

Though the recent crypto turmoil will cause minor interest – for the time being – this market is expected to develop further technologically and creatively. We will see industry disruption and ideas for utility NFTs such as in-game NFTs, identity tokens, and token-gated communities. Another trend is that the NFT market – previously only on the Ethereum platform – will increasingly be conducted in different chains. There will arrive a growing number of blockchain based platforms that allow players to trade their crypto  assets on secondary markets.

c. We will the growth of interesting applications of tokenised assets
A new model around blockchain technology that will further emerge in 2023 and beyond is so-called asset tokenization. Tokenization thereby uses blockchain technology to turn digital or physical assets such as stocks, treasuries or corporate bonds into digital tokens. They are becoming increasingly popular, as smart contracts automate tokens transactions, while helping reducing  and increase transparency.

We may see the growth of interesting applications of tokenised assets such as flash loans and real estate, while we will also see a surge of start-ups focused on bringing TradFi institutions into crypto in a regulatory-compliant way. Unlike crypto currencies, tokening makes assets easier to other people – both retail and business-users, to own that asset. It may open the present markets where trillions of dollars/euros are locked up in assets that cannot be deployed or to which there is extra ordinary limited access. Via asset tokenization anyone can invest in assets. People no longer need to go solely to the stock or cryptocurrency market.


6. The blockchain markets will further develop

But also in the blockchain area there will be a number of interesting trends that will determine the future development of the blockchain industry and how this technology is evolving in the coming years.

a. The blockchain markets will show further growth
Over the past few years, interest in blockchain technology has grown steadily and rapidly, with an increased adoption of the technology by finance and banks, governments, international trade and supply chain management, triggered by the various benefits it could deliver.

As a result the blockchain market is expected to further grow in 2023 and beyond. The spending on various blockchain solutions (market volume)  is forecasted to increase to $ 23,3 bn in 2023 (from $ 12,2 bn in 2022).

b. Private blockchains are becoming popular
A trend that has started a few years ago and will further continue in 2023 is the growing adoption of enterprise or private blockchains. Enterprises are becoming more interested in private blockchains, because it permits only authorised users to access the network and take part in transactions. They require a key, sometimes called an invitation key from the owner. Private blockchains networks prove essential for safekeeping enterprise data. Access to certain documents and information is role-based and programmable to the authorised private blockchain based systems.

c. Blockchain will become mainstream
The adoption of blockchain-based systems is increasingly becoming the new standard across numerous industries. A growing number of Industries outside finance, are now searching for blockchain solutions. Thanks to blockchain’s ability to be used in almost any field, the trend will continue for years to come.

As the technology continues to evolve, more and more businesses are leveraging blockchain to streamline their operations. Blockchain is increasingly seen as an ideal for industries like finance, international trade, insurance, legal, logistics, supply chain management, healthcare, insurance, media and e-commerce where payments must be transparent, secure and efficient.

 

7. Blockchain infrastructure becomes more mature

The year 2023 will see a number of interesting developments showing the blockchain infrastructure is becoming more mature, including cloud services, DAO’s, interoperability and compatibility tools.

a.  Blockchain as a service (BAAS)
While the cloud services industry is still young, their transaction growth is driving innovation. For business it makes it possible to use technology, software etc. without huge investment, to build their own infrastructure and acquire new skills. More broadly for cloud services, blockchain brings greater privacy and security capabilities. Currently start-ups and established companies of all sizes both use Blockchain as a Service (BAAS). It is now offered by numerous well-known organisations incl. Microsoft, IBM, Amazon etc.

During 2023 we will see a firm pick up of BAAS. It supports IOT applications by offering different blockchain-enabled services such as smart contract services, dApps, verification services or user information and cloud blockchain storage. Beyond these improvements to to-day’s cloud services, blockchain can be added as a service offering itself for secure network management.

b. DAO’s go mainstream
With the rise of blockchain technology, Decentralized Autonomous Organizations (DAOs) has grown in popularity and this trend will continue in 2023. Decentralisation is changing the way business is done, thereby helping to reduce costs while eliminating the need for intermediaries.

DAOs are new model for organizations that are managed and operated on decentralised networks and use blockchain technology to store and share information. These  are automated entities that operate on rules encoded as smart contracts and have no single point of failures. They can exist and make decisions without any human management. DAO’s also give individuals more access to economic resources, by allowing them to invest their money into projects they find promising, without needed someone else to manage it. How DAOs can overcome incentive challenges, implement cross-chain asset management and interaction capabilities and expand use cases will be key for the next phase of its development.

c. We will also see cross-chain solutions to solve  interoperability and compatibility issues
Protocols are entering the blockchain market that provide fast connectivity of different blockchains. Initially there were many protocols and platforms in this sector but there were no standards. For this reason, companies could not achieve compatibility across platforms at the same time. The main challenge was the usual transfer of data from one user to another without the ability to negotiate the terms.  New protocols such as Polkadot, Cosmos, Wanchain and others are now providing fast connectivity of different blockchains with trouble-free interaction. In these solutions various cross-chains are connected to achieve interoperability and compatibility.

 

8. More blockchain innovations will enter the market

As blockchain technology further develops we will see more innovations entering the market, including dApps, smart contracts and new consensus mechanisms.

a. Firm uptake of dApps
In 2023 we are going to witness a more massive adoption of Decentralized Applications or dApps. These are applications that run on a decentralized network and use blockchain technology to store and share data. As companies seek ways to increase efficiency and reduce costs, DApps are gaining popularity. Blockchain networks offer endless possibilities for dApps with peer-to-peer nodes and smart contracts. With dApps one can diminish censorship from centralised authorities and ensure privacy or dApps development flexibility. dApps do not experience downtime since they leverage decentralised computing and utilize open source licenses to lease or use. dApps are also crucial to accelerating WEB 3.0 integration.

b. Increasing popularity of smart contracts
Another trend we are going to see is the increasing popularity of smart contracts in a growing number of sectors. These are digital ones that are automatically executed after meeting several conditions. When certain conditions are met, agreements are instantly implemented by a blockchain allowing for proxy-free contracting without the need for intermediaries.

They are becoming increasingly popular, as smart contracts help reduce paperwork and manual processing, as well as eliminate the need for intermediaries. Due to smart contract mechanisms blockchain services are now available to companies that do not have the resources for several years of research and development of their blockchain system, allowing them to make their own  self-executing contracts, protecting against unforeseen circumstances.

c. New consensus mechanisms entered the market
New methods of cryptography to verify transactions are entering the blockchain space such as Proof of Stake (POS), Proof of Authority (PoS) and Zero Knowledge.

Proof of Stake (PoS)

Newer protocols to reach consensus are focused on eliminating the problem of power consumption and become more eco-friendly. The Ethereum switch in 2022 from proof-of-work (PoW) to proof-of-stake (PoS), in an attempt to make their algorithm greener, reduced Ethereum’s energy usage by an incredible 99.9%, while speeding up data transfer and reducing fees. This trend is likely to be seen more in 2023 and beyond and is said to become the major topic. This will likely make blockchain an even more attractive solution for many companies.

Proof of Authority
Proof of Authority uses a large number of trusted and private networks in business. It has been introduced as a more energy-efficient alternative to PoS as less computational resources are needed. In proof-of-authority, machines earn the right to generate new blocks by passing a strict vetting process. These system moderators are preapproved participants who check blocks and transactions. The Proof-of-Authority model is scalable because it is based on a small number of block validators.

Zero knowledge protocols

Zero knowledge protocols may be one of the significant WEB 3.0 and blockchain solutions in the coming years. As the question of privacy comes to the forefront of the crypto industry, zero-knowledge technology has been particularly notable this year.

Zero knowledge technology can solve privacy and scalability issues for the newer layer 1 blockchain projects. Because blockchains are inherently transparent, this application is huge for the industry and allows many more interactions to take place on-chain in a private way. With ZK proofs, users are able to prove their identity on-chain without having to reveal sensitive data. ZK proofs are also extremely lightweight, making on-chain interactions much more scalable and efficient.



9. New identity, security, tracking and data analytic tools will further evolve

a.  Blockchain-based identification management will further evolve
With the move to digital commerce and communication, the individual identity (id) – as mapped to digital websites – becomes increasingly important to control and authenticate. Present id techniques are flawed in quite a lot of methods. They are porous, operate in isolation and are prone to errors. Blockchain techniques however can solve these issues, and offer a single source to verify identity and assets. Digital verification processes have already been developed based on blockchain technology that covers the entire user journey.

The operations for blockchain identity management are wide ranging. Blockchain identification can even supply a kind of ‘self-sovereignty. This is mainly for providers in the DEFI system and other necessary services that require verification. With the entry of NFTs and Metaverse into the market, the issue of digital identity will continue to trade.

b. There will be increased focus on security audits
Another trend is the increased focus on security audits. Many cross-chain bridges have been launched with the focus on speed, this at the expense of disregarding security. Cross-chain bridges have as a result become a popular target for hackers. With the raise in security-related incidents, we anticipate that more projects will recognize the value of auditing going forward. It is essential for projects to undergo a comprehensive security audit, together with other methods such as using bug bounties (a monetary reward given to ethical hackers for successfully discovering and reporting a vulnerability or bug to the application’s developer) to improve a project’s security throughout its ongoing operations and development.

c. Tracking tools will continue to develop
But also tracking tools will continue to develop in the near future, and may add more capability to anti-money laundering investigations. On-chain data can benefit blockchain analytics and anti-money laundering investigations immensely. We are already starting to see a multitude of on-chain trading and analysis platforms and tools. Through the data aggregation of these tracking tools, users can discover information such as the location of their funds and determine whether their assets are connected to stolen funds.

d. Blockchain data analytics will get more priority
Rich and open-source data is one of the blockchain’s best features, as it allows for deep analysis of on-chain activity. Data reveals a massive amount about how blockchains are used, emerging trends, user behaviour, and on-chain money flows. Blockchain data is however still largely untapped. Leveraging this data in an efficient and responsible way is integral to the expansion of blockchain dApps and their use cases. In 2023 we will therefore see more blockchain analytics platforms entering the markets which will be critical for understanding on-chain analytics through wallet activity.


10. Blockchain technology will be used for other applications

On the macro level, we will see more advanced implementations between blockchain and other technologies such as Web 3.0, Metaverse and Artificial Intelligence (AI).

a. Increased involvement of blockchain technology in Web 3.0.
We also will see an increased involvement of blockchain technology in Web 3.0. Web 3.0 is the next generation of the World Wide Web, that  will radically change of how people interact with each other, by putting them in control of their personal data. Web 3.0 also aims to provide a personalised browsing experience for each uses. 2023 may see a further move toward adoption of Web 3.0 technology including blockchain as many will start to realize that it has to offer plenty of benefits over traditional systems such as increased security and transparency, lower costs, faster transactions, and more efficient storage space.

By being built on top of decentralised technologies like blockchain, Web 3.0 will provide users with a way to interact without having their personal information known by central authorities. The other significant aspect of Web 3.0 is that transactions are going to be done via crypto users that will serve as tokens for identity verification purposes.

As blockchain-powered “trustless ecosystems” evolve into Web 3.0, they are becoming key to the creation and monetization of digital assest. Web 3.0 may thereby  take many forms including decentralised social networks, play-to-earn video games they reward players with cryptographic tokens and NFT platforms.

b. Growing use of blockchain technology for developing Metaverse
Another new trend is the growing use of blockchain technology for developing a secure and extensive Metaverse. The Metaverse, a shared virtual world providing engaging experience, can be interacted with big users through their digital avatar, an electronic image or online representation of the user. The ideas of the Metaverse is increasingly becoming a reality, with numerous well known platforms attracting a sizeable user base. Due to its decentralised structure, blockchain development can provide frictionless and secure access to the Metaverse, free from cyber-security and trend issues and inadequate user authentication. In addition to privacy and security, blockchain also links the Metaverse to the crypto economy, making it an attractive investment for companies in 2023 and beyond.

c. Companies increasingly use the combination of AI and blockchain
Blockchain technology is increasingly used to help keep track with the rapid development of Artificial Technology (AI) solutions, which studies the data in the blockchain and predicts future events, that is happening right now. Companies are increasingly using the combination of AI and Blockchain technology to build powerful solutions and we see that accelerating in 2023 and beyond.

Using blockchain to store and distribute AI models will provide an advanced audit trail and enhance data security for AI development. With the help of AI and machine learning, blockchain networks will become even more secure and efficient. This will enable businesses and organizations to store and share data securely, automate processes, and reduce fraud. AI can also use Decentralized Applications (dApps) to automate processes, reduce expenses, and increase transparency.  

The business world needs to pay attention to these trends

Blockchain technology continues to advance, and applications of blockchain are being presented every day. Blockchain is a rapidly developing technology with new standards and delivery models and with a wide range of opportunities. For businesses it is important to stay up-to-date with the latest developments in the blockchain and crypto  field. There are a number of these blockchain trends which a business needs to pay attention  to gain the maximum out of it.

These trends described in this blog will help aid companies and organizations use the technology to its full potential to improve and streamline their operations, reduce costs, increase efficiency and boost security.

Wish you all a happy 2023.

Carlo de Meijer

Economist and researcher