Tag Archive for: crypto

Crisis in the crypto markets: Will it survive? Yes!

08-02-2023 | Carlo de Meijer | treasuryXL | LinkedIn |

The collapse of crypto exchange FTX early November 2022 plunged the crypto markets into a crisis. This event sparked a wave of crypto-bankruptcies, failed investments and rapid collapses. 

By Carlo de Meijer

The current situation is a mixture of concern and uncertainty with the future of the crypto markets. This has triggered regulators worldwide to come with stricter regulations and oversight.

The main issues I want to talk about in this blog are: How did the crypto markets react up till now? What will 2023 bring for the crypto market? And what is needed to regain trust in the crypto markets?

How did the crypto markets react up till now?

FTX’s collapse and its bankruptcy triggered fears of contagion in the crypto market. This produced a wave of bankruptcies in the crypto industry, while other crypto companies had to reduce their workforce or were confronted with liquidity problems.

Here are just a handful of crypto firms affected by the crypto downturn to name a few include names like Genesis, Binance, BlockFi, Crypto.Com, Huobi,  Coinbase, Bitvavo, Kraken, Swyftx, Blockchain.com, ConsenSys, Amber Group and Silvergate Capital. And there are many more.

Wave of bankruptcies 

Main example is Genesis, the crypto lender and trade platform owned by Digital Currency Group (DCG). Genesis which served as one of the pillars of the crypto industry came into trouble when it had lent hundreds of millions to the sister company of FTX, Alameda Research.

Genesis has filed for Chapter 11 bankruptcy protection. Under this process, a struggling company is sheltered from creditors temporarily while it attempts to restructure its finances. Since then Genesis has frozen the outflow of client assets. Genesis owes creditors more than $3 billion. s a result more than 100 thousand of creditors of the US crypto company may lose at least a part of their claim/exposure..

Another example is crypto lender BlockFi, which earlier sought financial assistance from FTX. BlockFifiled for bankruptcy protection on Nov. 28, citing ‘significant exposure’ to FTX as the main reason for its collapse. That loan, for $275 million, is one of BlockFi’s outstanding debts that needs rationalizing under Chapter 11.  

Cut down on workforce
Last year, many crypto giants were forced to cut down deeply on their workforce to cope with mounting losses.  It comes as floods of investors have piled out of centralized exchanges after the collapse of FTX.

To name some examples. Crypto.com announced that it will be laying off 20% (490 employees) of its workforce, being unable to weather the collapse FTX without further cuts. Huobi, the crypto exchange plans to reduce its global headcount by about 20%, in the latest round of layoffs to hit the beleaguered cryptocurrency industry.

Coinbase, the largest crypto platform of the US has decided to cut about a fifth of its workforce (950 employees), as it looks to preserve cash during the crypto market downturn. Coinbase, had already slashed 18% of its workforce in June. Earlier December last year.

Genesis laid off about 30% of its workforce as it faced up to the FTX fallout, which had already forced to it to stop customer withdrawals. While the mother company DGC on its turn had to sack one-tenth of its staff.

Run out of liquidity
Triggered by the FTX collapse a growing number of crypto platforms are confronted with liquidity problems. The implosion of FTX exchange has created a liquidity crisis in the crypto market that may contribute to an extended crypto winter.

Binance, the world’s largest exchange, is facing questions about the reserves it holds to backstop customer funds. As much as $6 billion in digital tokens were pulled from the exchange between Dec. 12 and Dec. 14.  Last month, Binance briefly paused withdrawals of the USDC stablecoin, prompting concerns over its own ability to cover client redemptions. It has since resumed USDC withdrawals.

Another crypto company in trouble is crypto trade platform Gemini. Gemini lent Genesis funds for its interest-bearing product, is no trying to recoup $900 million of customer money from the embattled firm.

The FXT collapse and the resulting meltdown of the cryptomarkets also has its impact on the Dutch crypto world. Bitvavo, the largest Dutch crypto trade platform (40% of the market)  that manages 1,6 billion euro and has more than 1 million clients, is becoming victim. Bitvavo that has stalled 280 million dollar at Genesis and might not get back tens of millions of client assets.

More crypto companies feel the pain

The number of companies that are getting into trouble because of the FTX collapse is firmly increasing. Due to market conditions Coinbase has made the difficult decision to halt operations in Japan and to conduct a complete review of their business in the countryBlockchain-based payment platform e-Money that aims to bridge the legacy banking system through a single blockchain layer, has ceased its issuance of the EEUR stablecoin in the context of current market conditions.

The Metropolitan Bank Holding Corp, the holding company for Metropolitan Commercial Bank, has announced that it decided to completely shut down its crypto arm. Circle Internet Financial, which runs popular stablecoin USD Coin, is ending its bid to go public. And US-based Crypto payment firm Wyre is on the brink of liquidation looming shutdown and dissolution of operations of in January 2023.

Negative investor sentiment

The FTX collapse has affected investors across the globe and deterred investor confidence in crypto currencies. It firmly has reduced the trust of investors in the cryptomarkets questioning their credibility. As a result crypto exchanges saw disappear billion dollars from client accounts. While on the other many institutional investors in FTX had their investment stuck on the platform after it filed for bankruptcy on November 11. In the worst case this could cost investors, customers and lenders many billions of dollars.

The collapse caused many retail and institutional investors to rethink their future crypto investments as well as renew their focus on how sustainable crypto is for business. The FTX implosion has deterred investors and large buyers away from the crypto ecosystem. The FTX collapse has also “shaken potential investors,” making it more difficult for crypto start-ups to bring onboard the funding they need to scale.

Deep fall of crypto currencies

As result of all these events many crypto currencies were in a downward gliding spiral triggered by the FTX collapse.

Major crypto currencies Bitcoin and Ether fell to a historical low
When FTX exchange announced bankruptcy, the Bitcoin price dropped from over $20,000 to under $16,000 in a matter of days, a fall of more than 75 percent from their highs of $69.044 on 11 November 2021. The second major crypto Ethereum also saw a similar decline, falling from above $1,600 to below $1,200 as the events unfolded (high 10 November 2021 $4444.53). Other tokens like Dogecoin, Avalanche, and Solana also plunged heavily. Striking is that the crypto currencies regained some strength during January. Bitcoin, the leading crypto currency, climbed to well above $21.000 level, a 26% gain up till now.

Total market cap lost more than $2 trillion
As a result this deep fall in crypto currencies value and due to defaults and bankruptcies the market cap for cryptocurrencies has fallen to $798 billion, or more than 75 % from a record peak of almost $3 trillion in November 2021. In all more than $2 trillion in speculative market value evaporated in 2022. In January 2023 the combined digital currency market cap surged back and is now pegged beyond  $ 1 trillion.

Where crypto markets are heading in 2023

What is the expectation for the cryptomarkets for 2023 and beyond? Remediation will take time, and very likely this could extend this crypto winter by many more months, perhaps through the end of 2023or even longer in my view. This might give the recent uptake in crypto currencies a short live.

Contagion takes a long time to fully play out. According to experts, the true contagion effects of the FTX fiasco will continue to unravel in the coming period. There is the thread that other domino stones will tumble in the overheated crypto market. FTX contagion could lead to more bankruptcies and lawsuits this year as well. 

The crypto market might see “second-order effects” from counterparties that may have lent or interacted with either FTX or Alameda. That could create a liquidity crisis in the crypto market and cause major losses and liquidations throughout the crypto industry. This especially goes for the smaller crypto players.

This longer crypto winter could lead to more liquidity issues and bankruptcies, as well as further deterioration of investor confidence. The impact that this will have is that a lot of projects actually are not going to have the funds, and therefore the resources, for them to continue and develop.


What is needed for a sound crypto market?

The crash of the FTX crypto exchange highlights the shortcomings of this industry, lacking financial and structural transparency as well as financial protection of consumers.

The FTX downfall has triggered renewed calls for heightened regulation and more effective oversight of the largely unregulated crypto markets to protect investors and customers. Next to more stringent regulation and supervision, creating a more sound crypto market will also ask for a much more self-cleaning capacity of the industry industry while investors should be educated to understand the various risks of crypto.

Stringent regulation and more effective oversight


The FTX collapse will looks certain to stir regulators into action. The industry is steadily moving towards regulation globally to protect investors from market uncertainty obliterate security risks and prevent any impact on the monetary system.

Governments in the U.S, European Union and the U.K. are increasingly taking steps to clean up the market thereby preventing similar collapses. But while the US and UK are still in a very early stage the EU is well advanced and might become a blueprint for regulators around the world.

U’s Market in Crypto Assets Regulation

The EU’s Markets in Crypto-Assets Regulation (MICA) is the most comprehensive regulatory framework to date. The bill is wide-ranging, covering money laundering, the environment, corporate reporting and consumer protection.

It aims to reduce the risks for consumers by making crypto exchanges liable if they lose investors’ assets. It would require stablecoin issuers to hold enough reserves to prevent their collapse, and would require crypto miners to disclose their energy consumption. What’s more, any exchanges that operate in the region will have to be monitored by a financial regulator from an EU member state.

MiCA may serve as a blueprint for regulators around the world. The EU crypto regulation will likely have an impact that extends well beyond the EU’s borders due to its comprehensive nature and its detailed provisions around stablecoin issuance, market manipulation, custody, transaction reporting, and more.

If the European measures are successful, there’s a strong likelihood that other jurisdictions will adopt something similar – but on the one hand, that takes time to implement. It is important that regulators act quickly. But MICA is not due to start until.

Increased scrutiny and litigation by regulators
Regulators have long litigated the ‘bad apples’ in crypto. The U.S. government will continue its litigation in 2023, and we will see additional crypto-related sanctions guidance, enforcement actions and designations in the near term.

Another step to create a more healthier and credible crypto market is by increasing regulatory scrutiny. Cyber-enabled crime presents an increasing threat to international economic stability, as well as to honest individual investors in cryptocurrency.

In the mean-time supervisors worldwide have become more alert and intervene more often. Regulators in the US already started intensifying there scrutiny activities. The SEC recently advised public-reporting crypto companies to ensure they are adequately disclosing to investors any potential material adverse exposure they may have as a result of bankruptcy events and financial distress involving crypto intermediaries. The Federal Trade Commission is investigating multiple crypto companies over allegations of deceptive conduct. They are investigating several firms for possible misconduct concerning digital assets.

The Dutch central bank has fined the US trading platform Coinbase for cryptocurrencies Coinbase. Being active in the  Netherlands without being registered, the platform should pay a fine of 3,3 million euros. Since 2020 crypto companies are obliged being registered at DNB. In this way the central bank aims to better keep an eye on if these platforms ate doing enough to prevent money laundering of financing of terrorism.

Self-cleaning ability in the crypto world

As long as there is no crypto regulation on a large scale there is immense pressure on the crypto world to bring their house on order to recover its credibility and reputation. There is growing awareness at crypto companies that only more transparency could trigger the crypto markets to grow again. We are already seeing a renewed commitment by crypto platforms to building better, more trustworthy solutions in the space and expect that trend to be a core theme of 2023. Other announced they will only partner with platforms that are over collateralized and assure the safety of their members’ assets.

Crypto exchanges also took some steps to protect their investors. A growing number of crypto companies have announced to publish an audit soon or are  working on releasing Proof of Reserves to assure their users of their fund safety. But without proper regulation it will be a great challenge to draw up annual accounts control if the bookkeeping largely consists of crypto currencies.

Those steps are just the beginning, and companies and executives within the crypto sector would be wise to get their houses in order to avoid investigations or actions that can drain resources, harm reputations and destroy businesses.

Education for investors
Crypto companies are also starting to educate their users about different aspects of trading in this ecosystem. The crypto market is still relatively new and not yet fully understood, and market conditions can change rapidly. They are asking investors to keep in mind the potential risks and make well informed decisions before making any investments. For investors it is important to conduct thorough research and consult with professionals before making any investment decisions.

Narrower cooperation
In the wake of FTX’s collapse there is an opportunity for the crypto and broader financial industry and its governing bodies globally to come together and work towards standards of conduct, including reporting on reserves and other disclosures to ensure that the industry is doing its utmost to safeguard consumers thereby building trust in the crypto markets. .

Regulators have the challenge and sometimes competing goals of keeping consumers safe while supporting the future of innovation. Striking the appropriate balance between consumer protection and innovation will require close collaboration between the industry and policymakers across jurisdictions due to the borderless nature of crypto.


Forward looking

There are no crystal balls in crypto and predictions are not certain.

Though the outlook for crypto is bad at this time, the broader industry is not going away. We should look at it as a transition period.

The year 2022 should act as a wakeup call for both crypto companies and investors. Following the high volatility recorded in 2022, the crypto community understand that regulations will play a crucial role forward. The crypto sector must adapt if it wants to survive. Their survival will be determined by how seriously they take risk management, governance and regulation.

It’s clear the FTX drama could radically reshape crypto in the years to come. The cryptocurrency industry will never look the same again after all of this turmoil.

Carlo de Meijer

Economist and researcher


Treasury Policies & Processes for Crypto Transactions

02-02-2023 | treasuryXL | ComplexCountries | LinkedIn |

This call took place five days after FTX filed for bankruptcy. However our discussion did not dwell on crypto as an investment (We haven’t found a treasurer who would). The interest for treasurers is to help their companies understand the business opportunities of the metaverse, and that isn’t going away.


According to Gartner,’ [https://www.gartner.com/en/articles/what-is-a-metaverse] by 2026, 25% of people will spend at least one hour per day in a metaverse for work, shopping, education, social media and/or entertainment’, and…’A metaverse is not device-independent, nor owned by a single vendor. It is an independent virtual economy, enabled by digital currencies and non-fungible tokens (NFTs).

So it’s no surprise that many companies are developing strategies to capitalise on what could be a massive business opportunity. Participants in this call comprised treasurers representing companies at different stages of this journey, all facing the challenge that the regulatory and financial infrastructure available is at an early stage of evolution.

  • About half of the participants are still investigating the use of crypto and exploring how it works in case it does evolve within their businesses, but still not necessarily wanting to accept crypto or handle crypto within treasury operations.
  • Risk management to enable safe use in Corporate Treasury remains paramount and it isn’t easy.
  • We are seeing continued evolution around the NFT space and using crypto for settlement. But it continues to be quite limited.
  • Accounting requirements for how crypto currencies are handled are still not clear and not necessarily sustainable for the future. Regulations are going to evolve.
  • It is fascinating to hear, for the first time, crypto working capital is being used to match crypto receivables to payables in certain types of crypto currencies, e.g. Ether.
  • In the last 12 months companies have started to buy land in the metaverse in order to understand how it works as a marketing tool.
  • Selecting crypto currency platforms is challenging and KYC with some is a (reassuringly) painful experience. The providers discussed in this report include: Etherium, Coinbase, Mt Pelerin, Bit Panda and Anchorage.
  • For the most part, banks are watching the space and have yet to come up with solutions for corporates and CBDCs are at an early stage, but one thing we can be sure of is that there is a lot more to come on this topic.

Crypto has clearly not gone away for corporate treasurers and I’m certain we’ll see further uses going forward. There is a huge amount of detail in this report, which is essential reading for any treasurer wishing to understand the challenges or benchmark their processes.


To access this report

Acces to the full report is only available to subscribers to “Treasury Practice”. If you would like to request a subscription to this topic, please message [email protected].

What is possible in Complex Countries for Treasury?

26-01-2023 | treasuryXL | ComplexCountries | LinkedIn |

ComplexCountries reports detail how corporate treasurers approach challenges in complex countries, across associated treasury processes and how they adapt to economic and regulatory changes.

Their reports cover a wide range of topics associated with treasury processes in these countries, and how they are impacted by economic and regulatory changes. This includes how corporate treasurers approach currency risk management, compliance with local regulations, and maintaining cash and liquidity in the face of political and economic instability. The goal is to help treasurers navigate these challenges and protect their company’s financial position.

Find below some of the free reports detailing complex country challenges for treasurers


Want access to all reports?

Please log in on the website of ComplexCountries. Or contact ComplexCountries to find out about their subscription packages.

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


The Impact of Russian Aggression on Regional Treasury & FX

13-12-2022 | treasuryXL | ComplexCountries | LinkedIn |

This call was held at a point in the conflict where Ukraine had made serious inroads into Russian held territory, and there was a lot of talk about the potential use by Russia of nuclear weapons. So, one of the questions was whether treasurers are expecting a nuclear escalation, a spread of the conflict, and what to do to prepare for it.


None of these concerns were mentioned. For most companies, the business in the countries surrounding Russia and Ukraine is minimal. The bigger concern is, and remains, the impact on the business outlook in the rest of the world, the impact of increasing interest rates, inflation, and logistics issues – though logistics seem to be improving.

Instead, most participants continue to do business in Russia – mostly because they are in industries that benefit from the health and humanitarian exceptions to sanctions. In other cases, the business is essentially local, but uses the corporate brand – this means care must be taken when withdrawing. Having an exception from sanctions still leaves issues:

  • Even if your currency transactions are legal, a lot of banks refuse to handle them, because they do not want to take the risk of dealing with the country.
  • Many banks withdraw, reducing the choice of service providers. There was a lot of discussion about Citi – most participants use them, but there has been some confusion as to whether they are staying. The message to all participants is that they are.
  • Even when cross-border transactions are processed, there can be a lot of delay: the banks’ compliance departments examine everything very closely – but they are overworked.
  • The definitions of sanctions exempted products are inconsistent between various sanctioning groups (notably, the US and the EU), and they leave logical inconsistencies
  • The sanctions and regulations on both sides are something of a moving target, so compliance can be challenging.
  • There was an informal trouble zone in the countries surrounding Russia: Georgia, Kazakhstan, etc. This business is now moving to USD and EUR, which has reduced liquidity.

Despite this, our participants found it is generally possible to make payments into and out of Russia, even if the process can take a long time. Banks are moving to close offshore rouble accounts, especially in London, but they are being flexible over deadlines. Dividends are definitely not allowed, but most other types of payment seem to be possible. While some participants continue to move towards the exit – protecting local employees remains a priority – other are finding that their business in Russia is doing surprisingly well.

In terms of banking, everyone seemed to be using Citi [this discussion took place before Citi announced their withdrawal from Russia – from March 2023], though most were opening accounts with Raiffeisen as a backup. This is a return to the Communist era, when Raiffeisen was the main conduit for payments to and from Russia.

Bottom line: for our treasurers, the main concern is slowing economic growth in the west, increasing energy prices, higher interest rate and inflation. This is impacting their main business, which is typically not in Eastern Europe. As for Russia itself, people continue to move towards the exit – but those who have to stay, for mostly humanitarian reasons, are finding that business is complicated – but it continues.


This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
Please contact ComplexCountries to find out about their subscription packages.

SWIFT and CBDC projects: successful experiments

14-11-2022 | Carlo de Meijer | treasuryXL | LinkedIn |

Early October SWIFT launched two publications describing the results of two important experiments, one on interoperability and the other on tokenization. In these publications SWIFT has aid out its blueprint for a global central bank digital currency (CBDC) network following an 8-month experiment on different technologies and currencies.

By Carlo de Meijer

SWIFT thereby said that it had solved “one of the thorniest” problems central bank digital currency (CBDC) developers have been wrestling with: How to use them for cross-border transactions and how to create interoperability between different networks. The idea is that once scaled-up, via SWIFT’s interoperability  solution banks may need only one main global connection, rather than thousands if they were to set up connections with each counterpart individually.

“We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a major step towards unlocking the potential of the digital future”, Tom Zschach, Chief Innovation Officer SWIFT.

Let us have a deeper look!

Present CBDC projects: the interoperability issue

As told in my last blog the emergence of CBDCs is gathering speed with a growing number of central banks worldwide building, studying or considering digital versions of their national currencies thereby starting to seriously map out the massive, costly infrastructure required to roll out digital currencies backed by countries.  .

Globally, nine out of 10 central banks are. now actively exploring into digital currencies, often using different technologies. However with a primary focus on domestic use.

Many Central Banks are thereby struggling with its technological complexities including the issues of interoperability and standardisation. Few of the roughly 100 countries are working on making them interoperable via technical standards and those that are, are generally doing so in small groups with neighbouring countries and trading partners, such as in the EU.

But with multiple players building different solutions, on different technology platforms, the danger is that it will result in a future digital financial ecosystem consisting of ‘digital islands’ that can’t interact with one another,  which may limit large scale adoption.

For the potential of CBDCs to be fully realised across borders, these digital currencies need to overcome inherent differences to interact with each other, as well as with traditional fiat currencies. That potential however can only be accomplished if the various methodologies that are being explored could unite and work together.

That is why the attention of a growing number of those central bank experiments, is rapidly turning to how the CBDCs of different countries could interact when using different networks. Making CBDCs interoperable is however difficult.

Two SWIFT Publications

Early October SWIFT launched  two publications outlining how CBDCs could work in the real world, with a particular focus on cross-border payments. They thereby explored the use of a blockchain system to connect these different blockchains, something that has not been achieved in the crypto space:

SWIFT views inclusivity and interoperability as central pillars of the future financial network/ecosystem. They have been looking at ways to make CBDCs work globally, making them compatible with regular currencies.

In these publications SWIFT described the findings from two separate experiments that started in December 2021, demonstrating how to successfully transact between different CBDC blockchains networks as well as with traditional payment networks.


Two Experiments

SWIFT conducted two separate experiments to prove its cross-border transaction feasibility and interconnection capabilities. In the last eight months SWIFT worked with different technologies and currencies thereby cooperating with Central Banks and financial institutions worldwide.

These experiments bridged assets between different distributed ledger technology (DLT) networks and existing payment systems, which allowed digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts.

These experiments are part of the company’s wide-ranging and extensive innovation agenda to provision their strategic focus on enabling instant, frictionless, and interoperable cross-border transactions for the advantage of the SWIFT community.

Aims of the two separate experiments were

a) solving the significant challenge of interoperability in cross-border transactions by bridging between different distributed ledger technology (DLT) networks and existing payment systems, allowing digital currencies and assets to flow smoothly alongside, and interact with, their traditional counterparts.

b) as well as provide interoperability between different tokenisation platforms and existing account-based infrastructures.

Ultimate aim of the two trials was to create a blueprint for CBDC usage across borders.


First trial: Interoperability

In the first publication SWIFT released the results of the first experiment, that was  aimed at looking how CBDCs could be used internationally and even converted into fiat money if needed. This in order to overcome the difficulties encountered of interoperability between different blockchains.

How was the first trial set up?

In this first trial SWIFT narrowly collaborated with Capgemini. They thereby carried out CBDC-to-CBDC transactions between different DLT networks, as well as fiat-to-CBDC flows between these networks and instant real-time gross settlement system. SWIFT therefor built two simulated CBDC networks, one implemented on R3 Corda, and another on Quorum, a permissioned Proof of Authority (PoA) version of Ethereum.

CBDC network regulators thereby run and governed a ‘trusted DLT node’ created as part of Swift’s solution. This allowed them to have a view on transactions within the permissioned blockchain as well as its messages to the Connection Gateway. In this SWIFT implementation they lock the assets in an escrow, tell the SWIFT system it is locked, and then receive the funds from the other party.

Next Steps: CBDC Sandbox

The tests are followed by additional and more advanced testing environment by almost 20 commercial en central banks over the upcoming year 2023, including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo

SWIFT has deployed the infrastructure into a running CBDC sandbox and visual interface where blockchain based central bank digital currencies (CBDC) can connect to each other globally through SWIFT, as well as connect their blockchain system to SWIFT’s more traditional ‘fiat’ system.

They are now collaborating in the more advanced testing environment, thereby further experimenting with CBDCs using real time variables, to explore how its platform could interact with the cross-border use of CBDCs, assess potential use cases and wider CBDC operability, build the solution further and accelerate the path to full scale deployment of the interoperability solution.

SWIFT will seek feedback through to late 2022.


Second trial: tokenization

A separated second experiment was carried out in collaboration with several  financial institutions and other technology partners such as Citi, Clearstream, Northern Trust, and technology partner SE.

This trial involved tokenization, a measure used to secure sensitive information. The test aimed to use tokenised assets to trade property like stocks and bonds.

This trial was aimed to evaluate how their existing infrastructure could be used as a single access point to multiple tokenization platforms

Under the experiment, the team explored 70 scenarios simulating real-time market issuance and secondary market transfers of tokenised bonds, equities and cash. This to mirror real-world market transfers of tokenized bonds and equities.


Importance of tokenization

Digital currencies and tokens have huge potential to alter he way we will all pay and invest in the future. Though tokenisation is a relatively nascent market, the World Economic Forum has estimated it could reach $24tn by 2027.

Especially when it comes to strengthening liquidity in markets and expands access to investment opportunities. The potential benefits include improved market liquidity and fractionalisation, which could increase investment opportunities for retail investors, and enable institutional investors to build stronger portfolios.

But that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together. SWIFT’s existing infrastructure can ensure these benefits can be realised at the earliest opportunity, by as many people as possible.

Single Connector Gateway

SWIFT explored the use of a blockchain system to connect these different blockchains to facilitate cross border payments, something that has not been achieved in the crypto space.

The test teams build a simulation of SWIFT’s enhanced platform and combined that  with a Connector Gateway to link different CBDC and traditional payment networks at the technical level with the aim of establishing network interoperability.

SWIFT’s new CBDC interlink solution will enable CBDC network operators at central banks to connect their own networks simply and directly not only with each other but all existing payment networks in the world through a single gateway, facilitating CBDC cross-border payments thereby ensuring the instant and smooth/seamless and scalable flow of cross-border payments.


Main Findings

SWIFT has confirmed that the two experiments conducted in recent months have yielded positive results. The results of the trial showed:

  • promise for cross-border interoperability among countries with varying and emerging digital ecosystems..
  • it may solve the challenges of cross border transaction by combining different DLT networks and current payment systems. It also showed the possibility of interoperability of multiple tokenized platforms.
  • it also showed that SWIFT’s existing infrastructure could be used to interconnect various CBDC blockchain networks around the world directly for cross border transactions, not only with each other but with existing payments platform systems via a single gateway.
  • SWIFT thereby successfully facilitated cross-platform transactions using CBDCs through both a fiat-to-CBDC payment network and different distributed ledger technologies.
  • these experiments also showed that it  was possible for digital currencies and tokenized assets to flow smoothly alongside, and interact with, their traditional counterparts on existing legacy financial infrastructure, guaranteeing instant and effortless cross border payments.
  • it proved that this tokenized network infrastructure could create and transfer tokens and update the balance in multiple wallets.


SWIFT’s future role

In collaboration with the community, SWIFT intends to explore its role further – both as a carrier of authenticated information about CBDC transactions, as it does today for fiat currencies, and as a carrier of actual CBDC value in whatever form it is issued.

Given SWIFT’s current infrastructure, all above mentioned advantages can be realized as soon as possible. The companies scale thereby adds weight to its blueprint. SWIFT has an existing network used in over 200 countries and connects more than 11,500 banks and funds.

By creating a global monetary authority digital currency network, SWIFT could thereby act as central hub and serve as a single access point to different blockchains while its infrastructure could be used to create and trade tokens across tokenization platforms.

SWIFT’s new transaction management capabilities could handle all inter-network communication. At scale such a single point of contact would more efficiently facilitate global transactions.


Forward looking

To become really utilitarian for cross-border payments, CBDCs and tokens will need to interoperate with the existing financial system infrastructure, which is why it is encouraging that SWIFT was able to show progress here. Solving the interoperability issue is a great step forward.

SWIFTs ground-breaking new innovation lays a path for digital currencies and tokenised assets to integrate seamlessly with the world’s existing financial ecosystem. By solving interoperability challenges the experiments may pave the way for deploying CCDC’s globally.

If successful and once scaled up banks may need only one main global connection, if they were to set up connections with each counterpart individually. This important step forward built on SWIFT’s core capabilities means that as CBDCs and tokens develop, they can be rapidly deployed at scale to facilitate trade and investment between more than 200 countries worldwide.

However for a massive use of CBDCs this also asks for tackling remaining issues. CBDCs have raised issues regarding surveillance and privacy that also should be solved. The SWIFT trials however have shown that their these results may be seen a s a great breakthrough


Carlo de Meijer

Economist and researcher



The Impact of Rising Interest Rates on Working Capital

07-11-2022 | treasuryXL | ComplexCountries | LinkedIn |

No apologies for the second report on working capital and interest rate rises in a short period: we are seeing significant changes in the business environment, and treasurers are being challenged.


This call focused primarily on the higher interest rate environment. One participant was mostly concerned about how to invest excess cash – the others are grappling with rapidly increasing working capital, driven by the need to keep bigger buffers, due to COVID and the Russia/Ukraine war, and the long delays in logistics circuits.

Funding challenges:

  • One participant manages treasury for South America, where there have been significant rises in interest rates, and, in some countries, funding shortages, with banks unable to provide cash and prioritising local companies. The challenges have been manageable, and they have not had to resort to drawing down all their lines to make sure they are available. This behaviour, which is akin to the rush on toilet paper in supermarkets, has been an issue in many markets, including more developed ones. However, there has been some, limited, pre-funding around significant events.
  • This has led to an increase in the number of banks in the funding panel.
  • One participant prefers their subsidiaries to fund themselves locally – but the cost of higher interest rates (for example, 35% in Turkey) is dissuasive, even if, economically, they are significantly below the inflation rate (>80%).
  • There is an increased focus on being more efficient in the use of cash within the company, so more pressure on cross-border pooling, accessing trapped cash, intercompany netting, etc.
  • Some participants are using the situation to selectively get higher discounts for pre-paying suppliers: this can be an effective way to increase the return on cash
  • Generally, the participants are at the point where these challenges cause additional work, but none of them is particularly serious.

Working Capital Management

  • Typically, treasurers have to fund working capital, but they do not manage it.
  • In all cases, there is a dialogue with the business about how much working capital the business can support, and how it can be reduced.
  • Higher interest rates are resulting in increased expense. Depending on the company, this may, or may not, be reflected in the measurements of the business units.
  • The participants all agreed with the business need to hold more inventory, but a dialogue is required to make sure this doesn’t get out of control. One participant works with the business on resisting calls to change payment terms, while another helps arrange pre-funding for suppliers, when needed.


This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report:

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
Please contact ComplexCountries to find out about their subscription packages.

The state of CBDC projects: lessons learned

18-10-2022 | Carlo de Meijer | treasuryXL | LinkedIn |

The future of the financial world will be digital. But it is becoming clear that this world will not be dominated by privately-issued crypto assets like crypto currencies such as Bitcoin or even stable coins.

By Carlo de Meijer

It is becoming all the more likely that it will be central bank digital currencies (CBDCs)  that are digital versions of nation’s fiat money that are issued and regulated by central banks as these are seen as more secure and inherently not volatile.

“Crypto assets and stablecoins are no match for well-designed central bank digital currencies (CBDCs). “If CBDCs are designed prudently, they can potentially offer more resilience, more safety, greater availability, and lower costs than private forms of digital money.” Kritalina Georgievamanaging director of the International Monetary Fund (IMF).

Recently, a number of interesting reports have been published giving insights on the present state of CBDC projects (IMF report) and on the various risks that these could bring (Atlantic Council GeoEconomics Center Research). There are also various private players that could play an important role in solving the various issues CBDC projects are confronted with, like Ripple and Algorand.

What can Central Banks and international organisations learn from their findings?

IMF Report: “The Ascent of CBDCs”

In September the International Monetary Fund (IMF) has released a report named “The Ascent of Central Bank Digital currencies”. The publication provides insight into the research the organization has done on CBDCs, thereby giving an update on the progress of the global development of CBDCs in various countries. In this report the IMF said that crypto’s technical capabilities could bring the potential for central banks to create a rich, diverse monetary system if well-constructed and that global collaboration might actually be a good thing.

This report shows there is a great deal of interest in the concept of CBDCs in a growing number of countries worldwide. Central banks all over the world are now exploring their potential as they could offer several benefits, but for various reasons, ranging from real-time payments to increased financial participation by the unbanked and underbanked.  

Present state
The report indicates that as of July 2022 about 97 countries across several continents around the world have indicated interest and are nowadays exploring CBDCs, which is more than half of the global central banks. Most Central banks thereby already moved beyond conceptual discussions and are either in the researching, testing or deploying stage of the process.

As of the time of publishing the report, so far only two countries have fully launched their CBDCs projects, namely the Nigerian eNaira in October 2021 and the Bahamas’ Sand Dollar  in October 2020. According to the data sourced by the IMF from its dedicated CBDC tracking website: another15 CBDC projects are in the pilot stage, while, 15 more are currently in the proof-of-concept stage, with 65 countries still carrying out research on theirs. Meanwhile, six countries cancelled their CBDCs.

What may it bring?
Furthermore, the IMF report  highlighted the benefits and issues associated with CBDCs.

The report states that one of the benefits of the digital asset is financial inclusion, as CBDCs are seen as an avenue for central banks across the world to bring financial services to their unbanked population. CBDCs will increase financial inclusion in nations by giving people access to banking accounts’ security and convenience.

But there are more benefits to be get. If CBDCs are designed prudently and possess all the qualities of the underlying technology of crypto assets, they can potentially offer more resilience for domestic payment systems, more safety, greater availability, and lower costs than private forms of digital money. This may lead to better access to money, increase efficiency in payments, and in turn lower transaction costs. CBDCs can also improve transparency, while providing more scalability and stability backed by central banks to the people using it.

The IMF pointed out some of the issues CBDCs might face including apathy, which may affect adoption. While a CBDC may have many potential benefits on paper, central banks will first need to determine if there is a compelling case to adopt them, including if there will be sufficient demand .

Additionally, issuing CBDCs comes with risks that central banks need to consider. Users might withdraw too much money from banks all at once to purchase CBDCs, which could trigger a crisis. Central banks will also need to weigh their capacity to manage risks posed by cyberattacks, while also ensuring data privacy and financial integrity.

Banking industry associations also announced  their fear that a central bank digital currency  – if not well constructed – could implode their core business model of loaning out depositors’ funds by enticing consumers to take deposits out of traditional accounts and keep them in digital currencies, which would cut deeply into the funds banks have available to lend

What should Central banks do?
When it comes to preserving users’ privacy and avoiding financial censorship, the creation of CBDCs has a number of challenges that must be overcome before they can be implemented.

The IMF pointed out that central banks need to assess risks before issuing CBDC, and at the same time strengthen the ability of cyber-attack risks, so as to protect the property security and privacy security of people in their own countries.

These challenges include training users on how to use it, authenticating identity, accessing it offline, and taking measures to preserve user privacy and security.

GeoEconomics Center Research

Another research on CBDCs relates to that of the Atlantic Council GeoEconomics Center that operates at the nexus of economics, finance, and foreign policy, and  seeks to shape a better global economic future.

Their recent report titled “Missing Key – The Challenge of Cybersecurity and CBDCs” shows that 105 countries and currency unions are currently exploring the possibility of launching a CBDC, either retail, issued to the general public, or wholesale, used primarily for interbank transactions. That is up from an estimated 35 in  2020. Of this total 19 Group of Twenty (G20) countries are considering issuing CBDCs, and the majority of them have already progressed beyond the research stage.

CBDCs may pose various risks
This research shows that CBDCs may pose various risks, but “responsible design could turn them into opportunities”. There is growing concern about cybersecurity and privacy risk, as more countries launch CBDC pilot projects.

There are many design variants for CBDCs, ranging from centralised databases to distributed ledgers to token-based systems. Each design needs to be considered before reaching conclusions about cybersecurity and privacy risks. Central banks should therefor understand the specific cybersecurity and privacy risks associated with CBDCs.

If implemented without proper security protocols CBDC vulnerabilities could be exploited to compromise a nation’s financial system. Present technology however enables central banks to ensure that both cybersecurity and privacy protection could be embedded in any CBDC design.

What can be done to mitigate these risks?

Centralised data collection
Many of the proposed design variants for CBDCs (particularly retail CBDCs) involve the centralized collection of transaction data. This is posing major privacy and security risks. From a privacy standpoint, such data could be used to surveil citizens’ payment activity. Accumulating so much sensitive data in one place also increases security risk by making the payoff for would-be intruders much greater.

The risks associated with centralized data collection can be mitigated either by not collecting it at all or by choosing a validation architecture in which each component sees only the amount of information needed for functionality.
The latter approach can be aided by cryptographic tools, such as zero-knowledge proofs, which authenticate private information without revealing it and allowing it to be compromised, or cryptographic hashing techniques.

These cryptographic techniques can be extended even further to build systems that verify transaction validity with only encrypted access to transaction details like sender, receiver, or amount. These tools have been tested extensively in privacy-preserving cryptocurrencies and are based on significant advances in the cryptography community. The technology already enables central banks to ensure that both cybersecurity and privacy protection are embedded in any CBDC design.

Transparency vs privacy
A common concern with privacy-preserving is reduced transparency for regulators. Regulators generally require enough insight to identify suspicious transactions, enabling them to detect money laundering, terrorism financing, and other illicit activities. International standard-setting and more knowledge sharing between banks is therefore critical of rapid development and adoption.

Cryptographic techniques can be used to design CBDCs that provide cash-like privacy up to a specific threshold (for example EUR 10,000 as was proposed in the EU) while allowing government authorities to exercise sufficient regulatory oversight. A new CBDC system would not need to reinvent security protocols but could instead improve on them.

Retail CBDCs
Several countries have committed to or even deployed retail CBDCs whose underlying infrastructure is based on distributed ledger technology. Such designs require the involvement of third parties as validators of transactions. The associated risks can potentially be mitigated through regulatory mechanisms such as auditing requirements and stringent breach disclosure requirements. This is why the need for international standard-setting and more knowledge sharing between banks is critical at this moment of rapid development and adoption.

Cross border regulation, interoperability and standard setting

Countries are understandably focused on domestic use, with too little thought for cross-border regulation, interoperability, and standard-setting. Fragmented international efforts to build CBDCs are likely to result in interoperability challenges and cross-border cybersecurity risks.

International financial forums, including the Bank for International Settlements, IMF, and G20 have a critical role to play towards the development of global CBDC regulations in standard-setting bodies.

IMF global platform for cross border payments
The International Monetary Fund (IMF) is pushing for a global platform for cross-border payments, that would accept CBDC payments, hold them in escrow and issue tokens to reduce the cost of international transfers.

The platform will provide a common settlement feature and a common programming language to write smart contracts on the platform that are compatible with one another. It will be available for both the public and private sector to use, that will help simplify international transactions. For example, a firm could further program a smart contract to “automatically hedge foreign exchange risks of transactions or pledge a future incoming payment in a financial contract.”

The overall purpose of the settlement platform is to simplify things for the private sector, help coordinate transactions between individuals, businesses and countries, and providing settlement services on a global scale to ensure payments are made in a timely manner. This could lead to the platform becoming a “tight public-private partnership.”

The platform will also introduce the tokenization of money. This would make money “accessible to anyone with the right private key and transferable to anyone with access to the same network.” “Tokenized money introduces a radical transformation that breaks down the need for two-way trusted relationships. Anyone can hold a token, even without having a direct relationship with the issuer”.

The next step in the process will be “the publication of two papers that will lay out an initial blueprint for such platforms to support CBDC clearing and settlement transactions between multiple countries in the hope of stimulating further discussion on these important topics, which are likely to shape the future of cross-border payments.” Adrian, director and division chief of IMF’s Monetary and Capital Markets Department


Ripple’s involvement in CBDC projects

But also private players like Blockchain-based cross border payments firm Ripple could play an important role in solving the various issues many CBDC projects are confronted with. Ripple already plays actually quite an important role and is participating actively in many CBDC development programs. Ripple is thereby working on CBDC solutions with several pilot programs already in progress. And there are several indications that show the company is indulged in several running projects also, not disclosed yet.

Ripple Labs partnered in 2021 with the Royal Monetary Authority of Bhutan. This partnership was focused on the issuance and further managing of the digital form of native currency ngultrum. A couple of months later, the company also partnered with the Republic of Palau for developing a digital currency.

Additionally, in February, Ripple was also said to join the Digital Euro Association, a Europe-based think tank, as a supporting partner. The initiative was focused on driving the growth and development of Digital Euro and CBDCs in the region. Ripple recently (on September 1) joined a new Digital Dollar Project (DDP) sandbox for testing CBDC technology, called Technical Sandbox Program.

Ripple’s solution is thereby based on the use of private versions of its XRP Ledger (XRPL) in CBDC programs launched in March 2021, which is technically not a blockchain but rather uses the digital ledger technology (DLT) that is the foundation of blockchains. The program had the objective to explore more potential technical and business effects of CBDC within the country.

XRPL’s Federated Sidechains
An interesting development during 2022 is the implementation by a number a number of leading blockchains, including Ripple and Ethereum, of so-called purpose-made sidechain solutions.

Governments will definitely need centrally controlled networks for their CBDC developments. However, such platforms can’t be built from scratch: they would lack a userbase and liquidity inflow.

Federated Sidechains by XRP Ledger can solve these problems as they can implement every logic, idea and governance architecture required for its issuers. At the same time, Federated Sidechains are flexible and adjustable when it comes to use cases, adoption and interoperability with mainstream blockchains.

The Ripple blockchain ((XRPL) can supercharge state-backed digital assets with its Federated Sidechains, and may play a decisive role in the development of Central Bank Digital Currencies. Ripple’s XBridge enables the transfer of assets across different ledgers. A federated sidechain can be centralized or decentralized, open or private, its validators can follow any consensus mechanism. Any feature can be implemented to enforce law and regulation.


Algorand Hybrid CBDC model

Another interesting player in the CBDC development area is Algorand. This blockchain company and central bank digital currency platform recently published their 2022 report “Issuing Central Bank Digital Currency on Algorand”, discussing the latest trends in CBDC development, capturing insights into  how CBDCs are unfolding at central banks around the world, and share their latest findings on CBDCs.

Hybrid CBDC model

The report also described Algorand’s hybrid model for using CBDCs and its advantages compared to other token-issuing L1 protocols. This hybrid CBDC model is built on a private instance of the open public Algorand blockchain.

This model, that has been tested in various CBDC projects,  is a  two-tier system that is seen as a unique approach from enterprise and other providers. It creates an environment that enables uncomplicated and smooth interaction between various ecosystem partners.

In this model, central banks have full control over the CBDC, while simultaneously enabling licensed service providers (LSPs) such as commercial banks, payment providers, and other fintech companies like e-money firms, to simultaneously facilitate distribution and transactions

The “openness-by-design” architecture of Algorand enables building protocols and processes robustly and stably that are interoperable with legacy systems and future requirements. Algorand’s consensus algorithm guarantees that transactions are quick and instantly final and that the blockchain never soft forks. This makes Algorand a perfect blockchain for CBDCs.

EU Digital euro project as an example

An example of how a CBDC project is advancing is the digital euro project. In July 2021 the ECB launched the investigation phase of the digital euro project. This phase aims to identify the optimal design of a digital euro and ensure it meets the needs of its users. During this phase the central bank is also set to analyse how financial intermediaries could provide front-end services that are built on a digital euro), how the currency would be distributed to users and how payments would be settled. .

The European Central Bank has picked five partners to help it develop a digital euro prototype, including Spanish Caixabank and US tech giant Amazon, alongside Worldline, Nexi and EPI. Caixabank will focus on producing a prototype for P2P online payments using the digital euro. Nexi has been appointed to provide front-end prototypes at physical shops to test different payment use cases. Worldline has been selected for the specific use case ‘peer-to-peer offline payments’ of a digital euro, which focuses on the payment between individuals, via a digital wallet..

This phase will see its end in October 2023, when the Governing Council will decide whether to move to the next phase, in which the ECB hopes to see the development of integrated services as well as carry out testing and possible live experimentation of a digital euro. This so-called “realisation phase” is aimed to develop and test the appropriate technical solution and business arrangements necessary to provide a digital euro. This phase could last around three years.

A decision on the possible issuance of a digital euro may only come later, also depending on legislative developments regarding a regulation and given essential aspects of the digital euro. This will be discussed by the European Parliament and the Council of the EU, upon agreement by the European Commission.

Policymakers will soon start working on a rule book for the digital euro scheme, needed to develop digital euro solutions and be ready if and when a digital euro is introduced.


Final remarks

The future of money is undoubtedly digital. Goal is to achieve much cheaper, instantaneous domestic and cross-border payments via the new technologies. A main role will thereby be played by CBDCs that are now under construction worldwide. It is however too early to tell how this landscape will evolve.

The question is, what will be the final outcome? The answer to that could come from the IMF report that shared some of the lessons learned from various central banks from their digital currency efforts.

Firstly, there is no universal case for CBDCs because each economy is different. So central banks should tailor plans to their specific circumstances and needs.

Secondly, financial stability and privacy considerations are paramount to the design of CBDCs. Central banks should therefor understand the specific cybersecurity and privacy risks associated with CBDCs.

In many countries, privacy concerns are a potential deal-breaker when it comes to CBDC legislation and adoption. So it’s vital that policymakers get the mix right.

Thirdly, there should be a balance between developments on the design front and on the policy front.

Fourthly, central banks worldwide should cooperate on areas like regulation, interoperability and standard setting.  International standard-setting and more knowledge sharing between banks is critical of rapid development and adoption.

And added to that “Public-private cooperation on the digital euro is crucial”.”
Fabio Panetta, Executive Board member ECB


Carlo de Meijer

Economist and researcher



The Impact of the Supply Chain Crisis on Working Capital

10-10-2022 | treasuryXL | ComplexCountries | LinkedIn |

Working capital is always a hot topic – but never more so than now. Depending on how you count, most businesses are facing double, triple or more whammies.


The Impact of the Supply Chain Crisis on Working Capital

  • Difficulty obtaining supplies, resulting in lost sales, or seasonal goods arriving too late for the season (one participant is in the apparel industry, where this is crucial).
  • Manufacturing inventories building up, as products cannot be completed or sold due to one or two missing components – but the rest have been bought and paid for.
  • Supply chain management building extra inventory buffers
  • Difficulty managing FX hedging programmes, as future cash flows become even harder to predict and forecast
  • And, of course, this is all happening against an environment of rising interest rates, which increases the cost of holding inventory
  • Margin pressures, due to increased shipping costs – especially given the increased use of emergency shipments, which come outside the agreed rates
  • Coupled with inflation and recession risks, there is an increasing concern over distributors’ being left with unsold inventory, with an accompanying credit risk

As always, we had a lively discussion – I encourage you to read the different stories our participants had to tell. They contain lessons for all of us. The main takeaways:

  • There is increased use of supply chain financing programmes, both supplier financing and factoring. Suppliers are becoming less reluctant to use them, and several participants have extended these programmes to countries and areas where they were not used before.
  • An increasing trend to use fintech platforms for this, rather than single bank programmes – often for capacity reasons, as well as ease of use.
  • In many cases, treasury is working with procurement and the suppliers to find a collaborative solution. This can involve paying suppliers early, to help them.
  • One participant spoke of a failed implementation of supply chain financing – the lesson being that you need to have the right team.
  • In each case, treasury is working with the business to try to find the right trade off between the cost of holding more inventory, and the cost of missed or late sales.
  • One participant uses internal factoring to make the best use of cash within the company, before they go to the outside market for funding. This is a cash optimisation tool we often forget.
  • One participant’s company manages very large, multi-year fixed price contracts, with many suppliers around the world. This is a particularly challenging environment.
  • Again, while treasury tends to view inventory and working capital as an evil, it can also be a competitive advantage, if you can supply when your competitors cannot.

Managing and funding working capital is one of the biggest challenges we face. In an environment such as today’s, it is an area where treasurers can truly add value to the business.



This report was produced by Monie Lindsey based on a Treasury Peer Call chaired by Damian Glendinning

To access this report:

Access to the full report is available to Premium Subscribers of ComplexCountries. Please log in on the website of ComplexCountries to access the download.
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DeFi and banks: Is this the end of traditional banking?

13-09-2022 | Carlo de Meijer | treasuryXL | LinkedIn |

The unregulated DeFi market has experienced remarkable growth in 2021. DeFi use cases bring a number of benefits and may remove a number of the shortcomings of the traditional financial ecosystem.

By Carlo de Meijer

Next to that the attitude of a growing group of new generation consumers is changing triggered by higher yields and the emergence of alternative digital and crypto assets. This paper attempts to answer a number of questions such as: what does DeFi mean for the traditional financial system?; should traditional financial institutions worry and why?; should they adapt to the new Defi environment?; what steps could be taken?; and finally, what will the new financial ecosystem look like?


Decentralised finance or DeFi caught a lot of attention in 2021 from both regulators  and traditional banks. The advent of this, until now unregulated, DeFi system has raised a new wave of investors and possibilities that the financial markets never envisioned. This has led to a massive inflow of liquidity since the summer of 2021. This paper will go into more detail as to what this could mean for the traditional financial world. The main questions are: will DeFi be sustainable in the long run and should traditional banks worry? Or is DeFi a new chance for the traditional banks to solve their present shortcomings by bridging the gap between CeFi and DeFi?


To understand the new DeFi world and its spectacular growth, the roots of the problem with the current financial system need to be examined. For a long time, traditional finance has been largely reliant on intermediaries, like banks, insurance companies and stock exchanges, thereby governed by strict regulation. For their operational needs and day-to-day transactions regular consumers need to deal with a raft of financial middlemen to get access to everything from loans and mortgages to trading stocks and bonds. They are then governed by strict regulation and controls. A business would have to complete anti-money laundering and ‘know your customer’ checks for every source of capital. These rules have been increasing to the point that compliance is often one of the biggest cost centres for many banks. Given the various diferences in national regulations, conducting a cross-border money transfer through a financial institution may be a long process with possible delays, making it more expensive. As a result, the current  market is not as efficient as desired, especially when it comes to inclusiveness and accessibility. This financial system is also not  transparent about what is happening, with customers having no control over their assets.  This keeps the risk and control of money,  financial products and financial services at the centre of these systems.


Triggered by these shortcomings and upcoming technological financial innovations, as well as the lack of attractive yields  in traditional financial products, a growing group of consumers, especially the Millennials and Gen Z, is fundamentally changing their attitudes. They are increasingly looking for alternative loans and assets to invest in. Many consumers are thereby searching for systems that are more flexible and less restrictive than the traditional ones. These new technologies have led to changes in financial products. Many of the existing traditional assets move to digital or have digital equivalents. A growing group  of consumers is increasingly looking for and experimenting with these more attractive financial assets, thereby driving the under current of interest in DeFi. 

In order to provide investors with more secure and easier access to crypto-assets, other platforms seek to bridge the gap between blockchain-based finance and traditional capital markets. Some companies are currently exploring this new marketniche by providing crypto-services to those who want to ‘take a safer road’, preferring to turn to ‘regulated’ institutions that trade and store crypto-assets on their behalf. In a way, these platforms create a bank-like environment meant to give crypto-beginners a sense of security — albeit a distorted one, as the companies’ accounts have been hacked more than once. 


Decentralised Finance, (1) or DeFi for short,  encompasses a new type of emerging financial ecosystem enabling decentralised financial applications, such as trading, borrowing and lending activities, powered by public blockchain or distributed ledger technology (DLT) networks and using cryptocurrencies.  DeFi refers to replicating traditional financial services used today in a decentralised way. The goal of DeFi is to create an open and transparent financial ecosystem that can be accessible (via the internet) to everyone anywhere across the globe. DeFi allows users  (buyers, sellers and borrowers) to interact directly with each other, so peer-to-peer, via decentralised platforms without a sign-up process. This is by building trust in the technology and the governance behind it. DeFi seeks to improve the efficiency of  financial transactions by replacing traditional middlemen with automated or smart contracts built on blockchains. These are coded, self-executing agreements where users directly interact with the application.  From borrowing platforms to stable coins (disposable tokens), the DeFi ecosystem consists of a vast network of integrated protocols and financial instruments. 

Users could access DeFi products through decentralised applications (DApps), or other  programs called peer-to-peer protocols, which are web-based applications powered by smart contracts and secured by blockchain technology. These require no access rights for easy lending, borrowing or trading of financial tools. As a result, anyone can transfer or lend money to another party without a bank, making these transactions easier, more affordable and more accessible.  The vast majority of these DeFi platforms and most applications are hosted on the Ethereum network, but many alternative public networks are emerging. 


DeFi is making its way into a wide variety of simple and complex financial transactions (2). They encompass nearly everything  that can be done at a bank with regular old (non-crypto) currency. These range from DeFi-based lending and borrowing including overcollateralised loans, decentralised  trading, staking to yield-aggregating or yield farming (earning) and liquidity mining. Margin trading and insurance and even NFTs or non-fungible tokens are also possible through DeFi protocols. DeFi developers are actively exploring and building more and new services to the ecosystem. 


This segment of the DeFi lending and borrowing space is rapidly growing. The lender and the borrower come together on a DeFi lending platform and execute smart contracts. By using DeFi lending protocols, crypto holdings can be used to obtain a loan. Most DeFi lending protocols do not allow for traditional credit checks on potential borrowers. 

Traditional finance loans in DeFi however are commonly secured by overcollateralisation.  

In the absence of a credit-approval process, posting collateral is typically essential to mitigate credit and fraud risks. The borrower gives his crypto as collateral and obtains a loan from the platform, while the lender gives his fiat money to the platform to earn some  interest. Borrowers leverage their trading by holding an existing asset in a vault and use  the borrowed asset to trade or compose more complex lending, borrowing and staking activities with the same collateral base. 


A typical example of DeFi use cases is staking, (3) a way of earning rewards for holding certain cryptocurrencies. This involves ‘staking’ (lending or investing) digital assets into a proof-of-stake platform, a consensus mechanism, and earning a percentage-rate reward over time. This usually happens via a ‘staking pool’, which can be thought of as being similar to an interest-bearing savings account, ensuring that all transactions are verified and secured without a bank or processor in the middle. Staking enables money to be borrowed against this stake and a small amount  of interest to be paid, which is probably going  to be beaten by the appreciation in the staking earnings. It eliminates almost all of the traditional finance concerns that people have. 

Yield farming 

Another DeFi use case and one of the most  promising is yield farming. (4) Yield farming  involves providing liquidity or lending out cryptocurrency to a DeFi protocol that puts it in a smart contract-based (trading or lending) liquidity pool in exchange for interest  or trading fees plus liquidity provider tokens that can then be staked in a yield farm to earn additional yield. These returns are expressed as an annual percentage yield (APY). Often the amount of interest earned or paid is less important than the amount of  governance tokens one can earn by lending  or borrowing (or both). Users earn tokens by locking cryptocurrencies in smart contracts running on the exchange’s trading plat forms. This protocol essentially means that a crypto-holder can farm for more crypto-tokens by using the existing tokens. There are a lot of diferent and sometimes very complex strategies to do this type of farming.  However, the most popular one is where a  platform consistently moves the user’s tokens between a number of lending platforms in  search for a higher return on a blockchain  like Ethereum. 

Liquidity mining 

Another area that is likely to grow in importance is liquidity mining. Providing liquidity is hugely important for the healthy running of decentralised exchanges  (DExs), although it is currently held back by the threat of impermanent loss (where providers risk losing some of their initial  investment due to price changes). Reducing impermanent loss is imperative to the development of liquidity mining. New formulae for automatic market makers that reduce impermanent loss are being developed, and the results look promising. 

Prediction markets 

Prediction markets are platforms where individuals can make predictions on the realisation of future events. These markets allow people to bet on the price of a currency, stock prices or the results of a future event like sporting events or elections and more. DeFi opens these markets for participation. In DeFi, prediction markets are intermediary-free, more accessible and typically have lower fees compared to centralised prediction markets. 


With the emergence of DeFi, a completely new ecosystem of platforms, working applications and protocols is developing through which borrowers, lenders and investors can undertake bank-like transactions with out banks. Decentralised platforms entered  the financial scene including decentralised banks (lending and borrowing), decentralised exchanges, decentralised insurances,  etc. This has also attracted a growing number of fintech companies, challenger banks and neobanks or cryptobanks that are disrupting the traditional financial system across the world with more agile, cheaper and more inclusive services. DeFi banks: Lending and borrowing Lending platforms are one of the most popular DeFi applications. Because borrowers  do not need personal checks, they can access loans faster and geographical barriers do not apply, making loans more obtain able. All they must do is deposit collateral. Lenders can lock cryptocurrency into these  platforms to earn interest, while users can borrow stablecoins by putting up collateral — 150 per cent of the amount borrowed  is common to account for price volatility.  There are various platforms that deliver  decentralised lending and borrowing services mostly using the Ethereum network.  These include protocols like Aave, Bancor, Compound and MakerDAO, with tens of billions in market size. 

Decentralised exchanges 

DeFi also gave birth to decentralised exchanges or DExs that are popping up at a growing rate. These exchanges benefit  from being independent and not being controlled by any regulatory authority. Right now, most cryptocurrency investors still use centralised exchanges like Coinbase or Gemini. At DExs however there is no company operating it. With the emergence of  decentralised exchanges, holders of crypto do not need to leave the crypto space to swap  their tokens. Decentralised exchanges allow users to exchange or swap tokens with other assets, without a centralised intermediary or custodian. The extra cost on each transaction is another negative aspect of centralised  exchanges (CExs), which DExs address, where there are fewer parties taking a cut of a transaction. 

DExs also do not require users to deposit funds to start trading. They facilitate peer to-peer financial transactions with the help  of smart contracts and function according to defined pricing mechanisms and let users retain control over their money. The most prominent example of a DEx is Uniswap, which allows people to trade crypto-tokens and swap tokens (5) that run on the Ethereum network. Other examples include Curve,  PancakeSwap and dYdX. 

DeFi insurances 

Thanks to the popularity of decentralised banks and exchanges there are now even crypto-insurances that may insure their DeFi investment for a percentage of the yield  they generate. They offer insurances that cover bugs in smart contracts. Decentralised insurances are still in origin stages. One example is Nexus Mutual, which is designing a decentralised alternative to insurance by allowing virtual communities to come together to pool their funds and share risks. As these platforms are built on self executing smart contracts, more options would be created sometime in the future, bringing further opportunities for the public. It is anticipated that larger and more sophisticated insurance models may emerge in the DeFi space in the years to come. 

Decentralised asset management, another evolving class of service offered  by DeFi is decentralised asset management.  This trading or creating of complex financial products and management of assets nowadays falls into the sector of traditional investment banks. Decentralised asset management intends to make investing faster, less expensive and more democratised. Transparency  delivered by DeFi promises to make information accessible and secure, composable to enjoy hyper-customisation of portfolios  and trustless to allow access to historically  illiquid assets and manage their investment regardless of location. Ampleforth is an asset management protocol of DeFi designed to be synthetic and smart commodity-money. It aims to provide a non-collateralised digital asset that helps traders and investors diversify their crypto portfolios. Ampleforth adjusts its tokens’ supply daily to match the market demand using a smart contract. 


The DeFi market has shown spectacular growth over the past two years. DeFi growth accelerated since mid-last year when services became more mainstream for the crypto-community. Decentralised finance has thereby developed into a complex ecosystem of platforms, working applications and protocols through which borrowers, lenders and investors can under take bank-like transactions without banks.  Today, billions of US$ have been put into the DeFi-ecosystem, locked on the various DeFi platforms (6). 

According to DeFi Pulse, the total value locked in DeFi contracts that was injected  in diferent DeFi protocols/services as of the end of last year was almost US$100bn  compared to US$500m in early 2020 — a  staggering 1,000 per cent growth in the past  two years. The recent hype around DeFi apps is driven by the growth of lending and borrowing protocols, especially those built on the Ethereum network. Lending currently represents nearly half of the DeFi  market. There are hundreds of examples of DeFi applications on the Ethereum ecosystem today. The majority of these are based on DeFi lenders Aave, Compound and Maker showing the concentration of lending and borrowing markets within DeFi.  This demand is especially evident amongst Millennials and Gen Z who will expect such services to be offered. 


DeFi is quickly emerging as a transparent  and permissionless way for users to interact directly with each other. The DeFi system offers a number of benefits for crypto-traders and investors that are currently not provided by the conventional financial intermediaries, including speed, efficiency  and lower cost. DeFi may thereby eliminate many of the traditional finance concerns that people have. 

Despite the various benefits and opportunities, the DeFi industry is still in a nascent stage, and has not been stress-tested by long or widespread use. It faces many challenges  much related to its non-regulated stance and  the resulting lack of consumer protection that need to be tackled for a real break through. These challenges still make many  traditional banks and consumers reluctant  to enter the DeFi space. 

More accessible versus attraction  of malicious players 

DeFi could greatly reduce the barriers to entry. By eliminating the need for centralised financial institutions and intermediaries,  being replaced by self-executing programs, DeFi makes financial services more accessible and more inclusive, regardless of credit history, networth, geographical location or class. The anonymity of DeFi users and the absence of checks however could attract  malicious actors that may use DeFi services to launder money and fund criminal operations and fraud. 

Faster and more (cost) efficient versus  congestion (7) 

DeFi may enable to handle the management of finance in a faster, more efficient way, eliminating the high costs associated with regulation and poor infrastructures. The lack of intermediaries and the use of smart contracts could greatly reduce operational costs and delays.  Furthermore, decentralised finance services are available 24/7.  As a result, DeFi may surpass the present banking system in terms of speed. But there are some negatives such as the concentration risk. Decision-making power on DeFi  blockchains runs the risk of being concentrated in a small group of large investors.  Concentration can facilitate collusion and limit blockchain viability. Large validators could also congest the blockchain with artificial trades between their own wallets or risk insider trading. 

Financial sovereignty control versus  lack of consumer protection 

Financial sovereignty is another advantage of decentralised finance. As intermediaries do not need to be relied on, people have full control over their assets and view their storage location and use. The existing lack of consumer knowledge could make it a breeding ground for fraud and manipulation by malicious developers, while the anonymity of DeFi users could attract actors that may  use DeFi services to launder money and  fund criminal operations and fraud. With DeFi being unregulated there is however no consumer protection if something goes wrong. 

Higher yields versus market risks DeFi may give users incentives for their  financial activities. DeFi offers more opportunities than traditional markets to earn higher yields, while the absence of intermediaries may considerably reduce the interest on loans procured on DeFi platforms. Consumers that currently participate in DeFi do so at a great(er) risk and may sufer losses. First, there is the investors’ risk, the sheer volatility of the crypto-asset markets. Cryptocurren cies are often subject to extreme volatility in the valuations of various digital assets. If  there is a downturn, the crypto-assets used as collateral may sharply decline in value  and some investors may see their positions  liquidated. 

Read here the article in which Carlo provides his opinion on what the expected conclusion is of crypto volatility for corporate Treasury


Stable coins versus illiquidity 

Stable coins are increasingly being used to  facilitate transactions on DeFi platforms. The growing use of stable coins may contribute to more stability. There are possible vulnerabilities with stablecoins. Stablecoins like Tether  (USDT) risk liquidity mismatches because  they are backed by commercial paper, which are short-term securities with mostly illiquid  secondary markets. The present cryptomarket is also very illiquid. Every small quantity of ‘buy’ or ‘sell’ of these assets may  hugely impact their value. Given the typically (over) collateralised nature of the  activities, volatility in the valuations of various digital assets posted as collateral could translate into volatility in the valuations of  the digital assets acquired. 

Address cybersecurity versus  security risk 

DeFi also has the potential to address cyber security challenges. The decentralised  blockchain makes financial transactions  secure and provides more transparency for users, maintaining a high level of privacy.  This is through the protocols that provide the assets, allowing anyone to inspect the code or the product, reducing the margin for human error. While a blockchain  may be nearly impossible to alter, the lack of regulation could make other aspects of the DeFi system, like the open source of smart contracts, vulnerable for hacks, cryptocurrency investment scams, fraud  and mishaps, which can lead to funds’ theft. Smart contract risks, such as bugs in the code, could lead to losses for users, as demonstrated by certain protocols in recent months. 


The debates around decentralised finance are heating up. If DeFi could become main stream, it might pose big challenges to traditional banks. DeFi may prove a disruptive force for traditional financial companies  and would have a great impact on how banks operate in the future. It will certainly revolutionise the way finance would be handled.  DeFi also has the potential to change the  structure of financial systems, completely shake up and potentially even replace the current financial system. 

DeFi: Still a tiny market 

But within the present environment that would be a step too far. Numerically DeFi  does not pose an imminent threat to traditional lenders. While the DeFi market has grown signif­i­cantly in historical terms, encompassing remittance, trading, lending, borrowing and various other types of  transactions, their market size is still very small compared to traditional banking.  The decentralised finance sector currently represents only a tiny 0.1 per cent of the trillion-dollar traditional finance industry.  Its potential for disrupting the larger financial system in the short term remains low. 

DeFi: Upcoming solutions 

In the meantime, a lot of work is already being done to overcome these hurdles.  Thereby changes are being made towards a more acceptable view of DeFi by both consumers and traditional banks. 

Within the DeFi space 

Within the DeFi space there is a growing number of initiatives that are especially aimed at removing hurdles such as collateral requirements and volatile digital assets.  Companies including Aave are working on permitting uncollateralised loans akin to traditional finance. And in 2022 there will be increasing interoperability between DExs, which is vital for improving liquidity. The German financial services firm Paycer is developing a bridge protocol to combine DeFi and cross-chain crypto services to integrate them with traditional (centralised) finance (CeFi) services. This should support full interoperability across multiple blockchains. 


Also on the education issue, there is a massive effort to upgrade the level. There is a growing number of educational institutions that are trying to improve the education of potential DeFi users and lower the high knowledge barriers. This will certainly help traditional bankers and regulators to become familiar  with blockchain technology. And there are initiatives such as DeFi for the People that can help industries identify how to integrate DeFi into their existing business models. 


There is a growing consensus from both the traditional financial world and DeFi parties that DeFi products and services  must be compliant, secure and appropriately audited and monitored to ensure users’ security and privacy. More DeFi platforms featuring KYC tools and compliant reporting systems to protect the DeFi market from regulatory uncertainties  and to lure traditional financial institutions are being seen. Concordium (8) and Verum Capital AG are collaborating to launch the first lab focused on developing regulated  decentralised finance products. 

Formal regulation 

Formal regulation is expected to come to the DeFi market in 2022 and beyond.  Multiple policymakers and regulators world wide are already keeping a close eye on the growth of DeFi and its potential negative impacts and are making up their minds. A positive signal is the growing trend among regulators worldwide to develop a collaborative approach. 

The EU’s upcoming Regulation of Markets in Cryptoassets (MiCA) (9) is expected  to have strong implications for the DeFi sector. There is increased scrutiny from the US Securities and Exchange Commis sion and the US government, which will  require protocols and platforms to significantly improve. But it is very likely that they will also come with regulatory solutions to ensure consumer protection while the innovative potential of DeFi may bring overall benefits to finance. 


DeFi is here to stay and is expected to fundamentally change traditional banking.  Bringing more real-world assets and financial  products on-chain will certainly expand in  the DeFi ecosystem, attracting more investors and traders alike. New types of DeFi assets, more regulatory clarity and lower  costs for transacting will further increase  mainstream adoption of DeFi. It is yet to attract more traditional financial institutions.  But once greater access to DeFi gets easier, traditional banks might have a real reason to  worry. Should recent DeFi trials prove successful, and more product offerings take off,  these protocols could start competing with traditional banks, presenting a main threat for them. Ignoring this trend might lead to a wake-up call in the future but by then it may be too late (10, 11). DeFi and the benefits it brings  to the industry should be seen an opportunity rather than a threat for traditional banks.  This goes especially for those banks that are willing to adapt. Financial institutions should therefore understand DeFi and start making big changes to their existing business model and fix those issues that DeFI corrects. 


The banking industry, especially the larger institutions, increasingly sees DeFi as a potentially signif­i­cant growth engine and disruptive force, challenging traditional banking. As DeFi further grows in size, and thus economic importance, they are increasingly seeking involvement in this sector, thereby exploring how they might engage with DeFi and the crypto-markets. 

Most already have large crypto research divisions investigating to understand the ins and outs of DeFi and the various use cases. They are considering the advantages and risks of DLT solutions, thereby monitoring developments in the DeFi market and are beginning to see DeFi’s potential to overhaul the inflexibility of present processes. Because of heightened consumer and institutional investor demand for DeFi triggered by much better results compared to stretched valuations and low yields in conventional markets, established banks and hedge funds are increasing their exposure (12) to the DeFi ecosystem. 


But to be effective, what steps should the traditional financial sector take in order to  survive? As on the scale of global finance, DeFi is still tiny, they should react in a phased way (13). Traditional finance should accept some DeFi products for existing customers, embrace DeFi and help shape the regulatory environment, create bridges and  develop middle-way options and finally cooperate with the DeFi industry through partnerships with leading fintech firms. 

Meet customers’ DeFi demands

A first step for traditional banks is to allow consumers wider access to DeFi via their  banking services. Many customers are looking for more flexible, beneficial and less controlled ways to meet their financial wishes. If banks want to embrace DeFi, they need to embrace this shift by acknowledging that both DeFi and crypto are here to stay. DeFi’s superior yield and transparency should  not be seen as a disadvantage, but more as  an asset to banks and other financial institutions. The main condition is that they move quickly enough to custody digital assets and offer users the ability to earn returns on those assets through DeFi. Banks will primarily compete to offer users the best access to DeFi in the near future. For that, financial infrastructures should be prepared to interface with smart contracts and blockchains now.  This will require financial institutions to  allocate and train separate teams dedicated to managing this new asset class and adopt DeFi  products that provide the best yield. 

Serve new generation customers:  Millennials and Gen Z 

Another way to get involved in the DeFi  ecosystem and to get ahead of the DeFi curve is to engage or partner with the group  of new generation customers that are looking for more sophisticated products. These are increasingly being served by challenger and cryptobanks. DeFi could be seen by traditional banks as the next step in providing  their new customers with the type of financial services they want to have. Just like in  the 1990s when the internet was introduced.  This group of risk-taking investors such as Millennials and Gen Z, which is nowadays underserved, increasingly sees value in digital and crypto-assets instead of the traditional low-return assets offered by traditional banks. Looking ahead, a next step will be offering asset management tools that simplify managing crypto for the wider retail  investor market. Given the complexity of investing in digital assets, the development of asset management funds that both democratise and streamline crypto-investment seems  a logical next step for banks. 

Proactively embrace DeFi 

Traditional banks could also align themselves  with the DeFi activities and be more proactive. This may ensure having an active and prominent role in shaping future regulation via technical instruments. There are various  options for banks to take a more proactive  approach to DeFi. These may include developing so-called greenfield DeFi propositions in collaboration with the DeFi community, and collaborating with regulators to work out how to build regulation while still preserving the decentralised nature of DeFi.

For banks, viewing DeFi through an innovationlens is key to enable DeFi to fulfil its potential at large. For that they need to evolve their own internal compliance work flows to connect their banking services and  the wider fiat economy to the opportunities that DeFi is likely to offer. One potential way forward is to shift the culture within  banks’ compliance departments away from  the present risk-averse approach to an innovation-first approach. This could be done by breaking down silos and encouraging compliance teams to work with engineers,  designers and product people to test different compliance frameworks and try to  innovate within those spaces. 

Bridging the gap 

As DeFi becomes mainstream, there will be a growing need to make this ecosystem compatible with traditional finance (14). Traditional banks could try to create a bridge between  the traditional centralised financial services ecosystem (CeFi) and the new DeFi world.  This will be done by developing credible and trustworthy pathways between both financial ecosystems. 

Up until now, any signif­i­cant moves to develop a bridge between traditional finance and cryptocurrency have come from centralised crypto-players like Coinbase and DeFi Alliance. These are establishing themselves as the kind of bridge-building industry thought leader and pioneer that banks should strive to reach. Coinbase is stimulating major banks to follow suit and offer an equivalent product allowing customers interested in cryptocurrency trading to have a wider choice of platforms. Another interesting player in this sector that focuses on bridging CeFi to DeFi is the Alkemi Network. This platform features an institution-grade liquidity network, offering CeFi institutions a professional avenue to invest in DeFi. Alkemi’s flagship product,  ‘Alkemi Earn’, is a lending and borrowing platform that allows institutions to access DeFi through its permission pool. This particular pool features a KYC framework and compliant reporting systems to enable institutions to navigate the — up until now still  obscure — DeFi market. 


Decentralising financial products at scale is increasingly becoming a reality. It is still in the early stages and although DeFi is promising, it still has some way to go before it is widely accepted by customers and financial institutions. But in the end DeFi could open a completely new ecosystem. What will that look like? 

To survive in the long term, traditional  financial institutions should move and adjust  to the new financial realities and start preparing (15) by adopting some DeFi principles and follow a phased approach. They should find ways to integrate DeFi into their systems and achieve coexistence. 

In the short and medium term, CeFi  and DeFi will behave as competitive or oppositional forces, which both have their own advantages. Banks could try to start bridging the gap by adopting compliant ecosystems, transforming the stream of old money into new digital and crypto-assets.  But DeFi’s distance from the traditional finance system is also likely to narrow as participants in traditional markets look to expand into crypto, thereby strengthening the links between both (16). 

Ultimately the two may converge in a  ‘competitive battle’, whereby the blockchain based principles that DeFi relies on are likely to become fused with the underlying architecture of global finance. Banks should think of the emergence of the internet in  the 1980s and 1990s and the rise in the  number of fintechs. After some time needed  to adjust to the new situation most of these fintechs were absorbed by the big financial institutions. That might now also be the scenario.



Carlo de Meijer

Economist and researcher






(1) Wojno, M., 2022, ‘What is DeFi?  Everything you need to know about the  future of decentralized finance’ available  at https://www.zdnet.com/article/what is​­-defi​­-everything​­-you​­-need​­-to​­-know about​­-the​­-future​­-of​­-decentralised​­-finance/  (accessed 23rd March, 2022). 

(2) Cryptotract, 2022, ‘What is DeFi? Should you jump into this evolving crypt segment?’ available at https://cryptotract.io/ what-is-defi-should-you-jump-into-this evolving-crypto-segment/ (accessed 23rd  March, 2022). 

(3) ‘Legacy banks should learn staking and  DeFi or risk and kick’, 30 May 2021, avail­able at https://www.investing.com/news/ cryptocurrency​­-news/legacy​­-banks​­-should learn​­-about​­-staking​­-and​­-defi​­-or​­-risk extinction​­-2518821 (accessed 23rd March, 2022). 

(4) Banerjee, A., ‘Staking vs yield farming vs  liquidity mining — What’s the diference?’  available at https://www.blockchain­ council.org/defi/staking​­-vs​­-yield​­-farming vs​­-liquidity​­-mining/ (accessed 23rd March, 2022). 

(5) Lee, P., 2021, ‘New DeFi swaps could  transform, conventional finance’ available at https://www.euromoney.com/ article/29b5w8wge0prncr8u4nwg/capital markets/new​­-defi​­-swaps​­-could​­-transform conventional​­-finance (accessed 23rd March, 2022). 

(6) ‘DeFi trends in 2022: Growing interest,  regulation & new roles for DAOs, DExes,  NFTs, and gaming’, 26th December, 2012  available at https://blocknewsmedia.com/ index.php/2021/12/26/growing​­-interest regulation​­-new​­-roles​­-for​­-daos​­-dexes​­-nfts and​­-gaming/ (accessed 23rd March, 2022). 

(7) ‘DeFi News: Better, faster, safer: How DeFi  will kill the retail bank’, 25th June, 2021  available at https://www.fxstreet.com/ amp/cryptocurrencies/news/better-faster cheaper​­-how​­-defi​­-will​­-kill​­-the-retail bank-202106251143 (accessed 23rd March, 2022). 

(8) Concordium, 2021, ‘Concordium will launch  a DeFi lab focused on creating regulated  decentralised financial products’ available at  https://www.prnewswire.co.uk/news​­-releases/concordium​­-will-launch​­ a​­ defi​­-lab​­-focused​­-on​­-creating-regulated​­ decentralized​­-financial-products-804302101. html (accessed 23rd March, 2022). 

(9) De Meijer, C.R.W., 2021, ‘DeFi and regulation: the European Approach, Finextra’ available at https://www.finextra.com/ blogposting/20516/defi​­-and​­-regulation the​­-european​­-approach (accessed 23rd  March, 2022). 

(10) IBM Contribution, 2021, ‘Is DeFi the end of the traditional bank as we know it?’ available at https://www.ibtimes.com/ defi​­-end​­-traditional​­-bank​­-we​­-know​­-it 3260305 (accessed 23rd March, 2022). 

(11) Hodgson, F., 2021, ‘How traditional finance  can survive DeFi’ available at https://fcpp. org/2021/07/14/how​­-traditional​­-finance can​­-survive​­-defi/ (accessed 23rd March,  2022). 

(12) ‘DeFi opens new possibilities for banks to  embrace change’, 30th November, 2021  available at https://www.pymnts.com/ digital​­-first​­-banking/2021/defi​­-opens new-possibilities​­-banks​­-willing​­-embrace change/ (accessed 23rd March, 2022). (13) Ibid. 

(14) Knegtel, J., 2021, ‘Crypto banks: The intersection of traditional finance and DeFi?’  available at (accessed 30th March, 2022). 

(15) Popa, A., 2022, ‘The opportunities of DeFi  for the financial sector explained’ available at https://thepaypers.com/expert opinion/the​­-opportunities​­-of​­-defi​­-for the-financial-sector​­-explained—1253966  (accessed 23rd March, 2022). 

(16) BIS Quarterly Review, 2021, ‘DeFi’s  decentralisation is an illusion’ available  at https://www.bis.org/publ/qtrpdf/r_ qt2112b.pdf (accessed 23rd March, 2022).