The six most important blockchain trends in the financial sector

Crypto token — investment, exchange value, bodyguard and coin at the same time

The digital revolution is switching to turbo — and not just in technology! The entire economy, finance and banking as well as investments are rapidly moving towards blockchain. This is particularly obvious when using crypto tokens as an example. In contrast to coins, tokens are based on an existing blockchain or protocol. Accordingly, they can be created faster and easier, which also allows rapid scaling.

Compared to a coin, a crypto token is a significantly more versatile digitized form of asset and can be used both for security purposes (security token) and as an exchange value (utility token). In 2019, the security token was approved by BaFin for securities trading.

- Utility token are quasi-digital vouchers that are issued to investors by a start-up and allow financiers access to the start-up's subsequent services and products. Utility tokens are not intended as a means of payment, although owners of the tokens can of course trade them via blockchain transactions. From a legal perspective, utility tokens are not investments or financial instruments.

- Security Token are directly linked to real values. If an investor invests in a real estate project, he receives a certain number of security tokens in accordance with the amount of the investment. This allows investors to claim dividend payments, participation and interest payments. The security token receives its value from the underlying real estate value. They are legally equivalent to a security and also correspond to financial instruments.

While crypto coins use their own blockchain platform and are produced as digital means of payment, crypto tokens are multifunctional digital assets that are usually built on existing blockchains.

Stable coins — the best of two worlds?

Stable coins were designed with the aim of being as stable and fluctuation-resistant as possible. For this purpose, the coins are linked to real equivalents and are based on real monetary policy and national currency values. Examples of stable coins include Tether, which is tied directly to the US dollar, or Libra from Facebook. However, a stable coin can not only be directly linked to monetary values, but can also be linked to direct equivalents of commodities such as gold or oil, for example.

In this way, stable coins should be converted into real fiat currencies without detours. This could also give less tech-savvy investors a taste for it, which could quickly skyrocket the reach and thus also the increase in value. In fact, the exchange should in principle become obsolete as a result of the stable value mapping, which could establish stable coins as unavoidable digital currencies. In addition, the traditionally high price fluctuation of cryptocurrencies is minimized by linking them to real values.

In fact, Mark Zuckerberg's planned Stable Coin Libra - controlled by the Libra Association in monetary policy - is already considered the biggest challenger to the hyped Bitcoin. Extreme fluctuations in value should be prevented by linking Libra to a currency basket. Facebook users around the world should be able to buy Libra in their local currency. The received national currencies are then collected in the said currency basket and form the stable real value counterweight to the sold Libra Coins.

DeFi should make Europe's finances fit for the future

DeFi stands for “Decentralized Finance” and is a kind of umbrella term for all digital, cryptographic financial resources and technologies that are no longer controlled centrally by central banks and governments. DeFi therefore does not refer to a cryptocurrency or a special blockchain, but the digital, technological ecosystem in which the decentralization of finances can take place. The DeFi ecosystem offers innovation drivers, start-ups, investors and investors the playground on which new, decentralized financial technologies can be implemented. What is prevailing in the DeFi world is virtually revolutionizing the old, analog financial system through the back door.

The DEFIN ecosystem works exclusively through cryptocurrencies, tokens and smart contracts. Anyone who wants to participate in this world of decentralized finance needs wallets to store their coins and tokens and uses apps developed specifically for DeFin, so-called DApps. In the DEFIN world, participants have access to countless financial services that would be unimaginable in the analog financial world. Not only are the offers from Defin players always available, the decentralized nature of financial transactions also allows unique transparency.

Government representatives and European monetary politicians have recognized the attractiveness of DeFi and want to use it to digitize the analog fiat currency euro. A digital euro would be based on a blockchain, would be monitored by the ECB and could be connected directly to the euro value as a stable coin. Goodbye cash: digital euros could be issued online without the need to produce coins or notes. Made simply from the blockchain in accordance with the ECB's requirements, digital euros could be used for online banking and digital transactions.

Fiat crypto exchanges and crypto lending trending

Loans are the fuel for economic action. As a result, hardly any real estate investment is made without bonds and even smaller purchases are gladly settled in installments, with payment deferments or as full loans. What is possible in a small furniture store is of course also available online — and in completely different dimensions!

In fact, crypto lending is very trendy and so various exchanges now accept not only fiat currencies, but also the respective crypto coins or tokens as security. The principle remains the same: The desired loan is provided by a lender and returned by the borrower after a negotiated period, including interest. This allows you to have 2 BTC sent directly to your wallet by a lender as a loan and pay back 2.05 BTC to the lender in one year. Binance, which was founded in 2017, is currently the most important stock exchange. Fiat crypto exchanges, on the other hand, are a hybrid between blockchain and real value. Securities, coins, tokens, euros and dollars can be lent, exchanged and interest paid here at will — whatever you like is allowed.

Crypto lending has the huge advantage that it is freely available to anyone who can use an Internet connection. The World Bank assumes that almost a third of the world's adult population has no access to traditional financial services. The poorest of the poor are unable to open bank accounts or borrow to improve their living conditions. Crypto lending allows everyone to receive loans of any amount from private individuals or digital financial service providers.

Digital asset custody — what actually belongs to whom?

Digital asset custody is the evergreen in discussions about security and anonymity in digital assets such as cryptocoins, tokens, or smart contracts. The nature of blockchain technology in particular can become a stumbling block for custody and access rights to digital assets. While traditional financial systems have a clear guardian with banks, this is no longer the case with decentralized exchanges and platforms. You are responsible for storing your investments yourself — which entails greater freedom, transparency and decision-making authority, but also involves risks that need to be answered first.

If you have lost the access key to your digital coin wallet, there is no way to prove that you are the legal owner of the digital assets in the locked crypto safe. In addition to the technological provision of digital wallets, service providers will not be able to avoid offering personal customer service and emergency plans for misplaced login data if they want to fully implement their promise of security and control. However, custody is currently only available to all those who invest large sums of money. Beginners are still waiting for a solution and until then rely on keys and cold wallets. The future of digital asset custody will also be of great interest for trading with digital coin-based funds. Because the fund manager must also have access to digital assets in order to be able to trade with them.

Identity management brings investors closer together

Decentralization — the main argument of blockchain enthusiasts is also a challenge. After all, who is responsible when everyone is equal and anonymous? And who assures investors and consumers that the systems are not systematically managed by interest groups? IAM (Identity Access Management) should provide the solution. First and foremost, it is not “who? “but “with whom? ”.

In the Defin ecosystem, the conventional identity card is intended to become a relationship card, which on the one hand ensures anonymity and on the other hand ensures greater security for interactions. Italy is the European pioneer with the nationalized IAM system “SPID”. Data brokers take over identity control here. One identity is sufficient to use all possible services. Although each user or legal group only receives a single identity, the data does not have to be stored centrally, as each service carries out its own relationship analysis. An interesting approach that could also set an example for other countries in the near future.