Such scenarios suggest a revolution in loan collateral and deposits. To the extent that something can be tokenized and its value confirmed through blockchain, the average individual’s leverage in borrowing would increase dramatically. Already, asset owners are selling tokens representing ownership of real property, registered on a specific blockchain for all to see in a kind of global register of deeds. Owners are tokenizing works of art and other items through such platforms as Swarm, Harbor and Polymath. The same infrastructure might be used to tokenize private equity, investment funds and real estate.
• Merchants’ rapidly increasing acceptance of cryptocurrency for payments. AT&T recently announced becoming the first mobile carrier to accept crypto for payments. And new technology making merchant acceptance moot. Crypto transactions are being driven by blockchain tech startups like Flexa, whose SPEDN app enables consumers to buy goods sending crypto with phones and merchants to receive these payments regular currency via instantaneous conversion. Thus, these merchants save millions in credit card processing fees. According to Flexa’s website, its network currently enables cryptocurrency payments at tens of thousands of retail locations around the United States, including Whole Foods, Nordstrom, Crate & Barrell and GameStop.
Also, digital currency got a boost from Facebook recently when the social media platform announced the debut in 2020 of its own cryptocurrency, Libra. And as blockchain gains momentum as a vehicle for both big retailing and P2P marketing, this sets the stage for a broadening use of crypto.
• The evolution of a cryptocurrency-based financial infrastructure. Last year, Fidelity Investments launched Fidelity Digital Asset Services, proudly proclaiming the company’s goal of making crypto more accessible to investors. And Bakkt, launched last fall as a subsidiary of Intercontinental Exchange (ICE, owner of the New York Stock Exchange) to offer digital currency custody, futures and transaction services, will soon offer investors delivery of physical bitcoin futures contracts.
Defying the predictions only a year or two ago from centralized financial organizations, crypto financial services entities have begun to dot the financial landscape. Amid this trend, speculation persists concerning when (not if) the SEC will allow the trading of a crypto ETF. Meanwhile, DeFiers foresee eventual approvals for securities tokens (pieces of shares of equities) to be bought and sold over blockchain because of its superior security. The more blockchain applications advance, the more DeFi services will be built using it and, ultimately, the greater the potential public acceptance. In the inevitable PR battle with centralized finance, blockchain gives DeFi supportable arguments for greater security, transparency and protection from governmental or institutional manipulation.
DeFi will need these arguments to tilt at the windmills of entrenched centralized institutions, which have the polemical advantages of the public’s unfamiliarity with blockchain and leeriness about cryptocurrency. Though DeFi entrepreneurs are slavish in their devotion to decentralization, they point out that the real attraction for the masses will be the superior value proposition that DeFi offers.
Questions from clients regarding cryptocurrencies, blockchain and DeFi will become more common. Knowing the answers will be more than just a point of client service. This knowledge will enable advisors to stay relevant and provide value—and empower them to earn a living in a decentralizing financial system.
Eric. C. Jansen, ChFC, is the founder, president, and chief investment officer of Westborough, Mass.-based Finivi Inc., an SEC-registered investment advisor. He is the founder of BlockSocial.com, a blockchain technology media site.