How Next-Generation Blockchain Projects are Driving the Future of Finance

  • Matt Arney, Head of Growth at Findora

  • 30.04.2021 12:15 pm
  • #Blockchain
Decentralized Finance (DeFi) is an ambitious undertaking to overhaul traditional financial use-cases such as wealth management, insurance, investment, lending, trading, and payments using next-generation blockchain technology. Leading DeFi projects employ a unique approach and solution to building the future of global decentralized financial infrastructure, one rooted in speed, privacy, and efficiency, while maintaining a layer of auditability for regulators and institutional compliance needs. Many believe that DeFi is what centralized financial services need to unlock their next phase of growth.

Among other differentiators, the unparalleled privacy and data security features found within these projects set them up to be the best hub for protecting the world’s financial data. A handful of elite projects will pave the way for mainstream adoption of the technology by offering decentralized transaction processors that support cross-border capital market transactions and empower users to easily and privately transfer financial history between financial institutions. As these projects continue to scale and mature--provided regulators embrace the technology--all banks will eventually be able to talk to one another, and consumers will be able to bank anywhere in the world. 

By the day, more researchers and entities in the broader financial services sector see DeFi as the future of finance. 

The bottom line is next-generation blockchains are where scalability, privacy and, eventually, blistering transaction speeds will intersect. The sluggish transaction speeds with legacy blockchains are a major concern for enterprises that depend on high-performance legacy transaction processing systems, which is a part of why adoption has been limited to date. 

On the other hand, many of today’s leading DeFi projects, though they are faster than the original blockchains, either offer too little privacy, exposing the details of every transaction for the world to see, or offer too much privacy, hiding every detail of a transaction and turning off regulators and financial institutions. Enter the latest breakthroughs in Zero-Knowledge Proofs as the key to unlock widespread adoption of the technology, as they strike the optimal balance between confidentiality and auditability. 

And these next-generation blockchain projects are beginning to transcend industry barriers. From enabling users of digital payment services to transact without revealing information to the servers operating the system, to allowing banks to outsource transaction processing to the cloud without giving the cloud any raw customer data, DeFi technology offers limitless use-cases across nearly every sector. In fact, some projects even allow for any financial asset to be transformed into self-executing software. From class A shares to real estate investments, they can support any imaginable financial asset. 

Now the question becomes, what is the significant inflection point that drives traditional finance into the blockchain era? The answer is world-class cryptography and the brightest minds in the field pouring into DeFi projects. That is now taking place. Cryptography is suddenly a crowded space. While the concept of zero-knowledge proofs is not new, the way up-and-coming projects approach and develop zero-knowledge proof technology is.

The secret sauce is how these projects go about accomplishing this complex process. Through cutting-edge cryptography and advanced distributed systems engineering, breakthroughs in zero-knowledge proofs are starting to enable efficient selective disclosure, which enables global scalability and the fastest cryptographically powered protocols released to date.

When the intersection of transparency and privacy is met, the gap between blockchain technology and regulators will diminish. After all, blockchain technology can only go as far as mainstream finance adopts it. 

For policymakers and large financial institutions that prioritize compliance, DeFi projects have developed technology that enables entities with the right privileges to trace assets through the end of their lifecycle without divulging PII. The industry has figured out the cryptography to blend individual user privacy with regulatory transparency, and it will lead to significant advancements in anti-money laundering measures, bringing big banks and financial regulators into the blockchain ecosystem at scale.

This is all to say, breakthroughs in decentralized finance are coming, and they are coming sooner than one might expect. Large financial institutions are becoming more bullish on blockchain technology for a reason, and given the upside of decentralized finance, it’s a safe bet to assume they are rapidly getting up to speed on their value proposition.

Related Blogs

Blockchain for Business Leaders in 2022
  • 5 months 3 weeks ago 06:00 am
Blockchain: A Revolution Picking Up Momentum
  • 2 years 2 months ago 06:00 am

Other Blogs