Richard Schroeder: At its simplest, decentralised finance means financial services built as open-source software on a blockchain.
“You have a decentralised organisation of thousands of developers seeking to build out alternative financial infrastructure - and then building applications on that common infrastructure in an interoperable way.” – Richard Schroeder
There are actually over one hundred “dapps”, or decentralised finance applications, and these applications cover a range of financial services across deposits, lending, derivatives and exchanges. In total, there's about $US85 billion in value tied up in these services.
Now, that's not a big number in global banking circles. So why is that relevant to us? Well, last year that $US85 billion was $US20 billion. And the year before that it was $US5 billion. That’s exponential growth.
All the feedback I’ve seen suggests many dapps are great applications to use. But what's most interesting is how they are built. These applications are a combination of digital assets, smart contracts and underlying protocols. And they're being built by very talented developers and finance professionals, not just a bunch of cypherpunks.
These are highly functional communities, many of which are well-governed, in terms of the direction of the protocols, by the underlying governance tokens. And the developers themselves are highly incentivised.
So you have a decentralised organisation of thousands of developers seeking to build out alternative financial infrastructure - and then building applications on that common infrastructure in an interoperable way.
If you add all that together, I think it's quite a significant opportunity for incumbent financial services groups. And indeed, ANZ is exploring this area and while it’s early days, it’s quite exciting.
Luke Marriott: You talk about the decentralised finance world in contrast to the traditional, centralised finance world. How do you see these two worlds coming together in the future?
RS: At ANZ, the way we're thinking about it is pretty simple. On what basis could we, or should we, adopt some of these DeFi protocols?
In that way, to the extent we can actually work through the risk management, governance and regulatory obligations to get comfortable with these protocols and their underlying financial services, then you will see a convergence to centralised finance, in my view.
LM: And Nigel, it's certainly an exciting space we're entering here. How do you see this affecting financial services businesses like ANZ?
Nigel Dobson: Well, I think it's a classic mix of threat and opportunity. And we need to sift our way through that.
I think it's about acknowledging there are alternative technologies out there which offer potentially better outcomes than what we traditionally provide.
But there's also a regulatory perimeter within which we still have to operate. Now, my belief is, as Richard described, that these DeFi protocols will probably start to converge eventually with more traditional finance. Or we will bring the elements of that decentralised and tokenised finance into our permissioned environments and allow the attributes that reside in those types of marketplaces to be leveraged with our customer experiences.
And so I think the element of governance, of the protocols themselves, and the regulatory perimeters we need to operate in, in order to ensure we have the trust and security our customers demand of us, is really important.
As they say, threat and opportunity are always related. It's a threat for us if, as banks, we do not act. It's a threat for us if we do not realise and understand the potential for improvement in the services we deliver today and in the future.
And therefore, the opportunity is embracing these - but with guardrails of regulatory governance and trust. That is going to be an essential element of our ongoing banking services.
For me, it's about dealing with the convergence of those threats and opportunities and aligning them to the needs of our customers as our focus remains on solving problems for our customers.
So where the attributes of these tokenised assets makes sense to solve problems, or generate new opportunities for creation of value, for both for ourselves and our customers - that will lead us down the path of future development.
RS: DeFi has a role to play in financial inclusion, too. The emergence of DeFi, off the back of the emergence of crypto, has in my view come from a good place from a financial-inclusion perspective.
It's actually about trying to improve the financial system globally, to create a more robust system. Better technology, increased efficiency, and greater financial inclusion.
ANZ is supportive of bringing that type of thinking into the bank to improve our services for our customers.