By Sathvik Vishwanath

India has seen a surge in smartphone and internet use in recent years, which led to the expansion of the e-commerce market as well as rising earnings. The e-commerce industry in India has completely changed the way business is conducted and has created new opportunities for business-to-business (B2B), direct-to-consumer (D2C), consumer-to-consumer (C2C), and consumer-to-business (C2B) transactions. In addition, major D2C and B2B markets have grown tremendously in recent years.

In that scenario, the global financial system is drastically altered by tokenization and DeFi. Thus, organisations have the chance to use these technologies and reconsider their own business strategies for the future as the e-commerce, cryptocurrency, and digital asset market quickly develops. Despite the fact that the DeFi regulatory environment and the nature of digital assets are mainly undefined and changing, recent regulatory announcements and remarks show that this area is receiving more attention. Agencies’ assessment of the growing retail and institutional adoption rate raises the risk that future regulatory actions may impact potential opportunities.

Opportunities That Tokenization Brings to Financial Markets

A new, much more accessible, efficient token-based economy is being made possible through tokenomics. With minimal intermediaries, buyers and sellers can now transact in securities and assets from the comfort of their homes. Moreover, tokenization in the financial markets offers the following main advantages and opportunities:

Broader Geographical Access: Platforms built on the blockchain offer cross-border accessibility, transaction transparency, and auditability. As a result, people from different nations can access the tokenized assets, significantly expanding the investment base and liquidity. Many platforms, both public and permissioned blockchains, follow the rules such as KYC/AML that need to be followed for such investments.

Faster and Cheaper Transactions: On the blockchain platform, asset tokenization enables 24-hour trading with a minimum involvement of mediators. Using smart contracts (coded business logic that is immutable and executes automatically based on pre-defined triggers), the transactions on the blockchain are carried out. Doing so lowers the cost of transactions and accelerates settlement from the conventional T+2 to near real-time.

Collateralized Lending: The market has more assets overall as more illiquid items are tokenized. Since additional asset classes are now accessible to regular investors, more assets are available for secured loan collateral. Due to apparent ownership and transaction traceability, taking a lien on such assets is significantly simpler for both borrowers and lenders.

Opportunities That De-Fi Brings to Financial Markets

DeFi uses cutting-edge technology and automation to integrate existing financial services featured in the TradFi system, such as lending, trading, and basic banking operations. Due to the decentralised peer-to-peer paradigm, retail and institutional participants have an exceptional opportunity to unbundle traditional finance, maintain ownership of their assets, and innovate to create custom services without intermediaries. Organisations have the chance to use DeFi’s distinctive qualities as the financial industry continues to implement solutions related to it. DeFi provides many useful use cases that are inaccessible to traditional fiat-based financial systems. The following financial market potential for DeFi are listed below:

Process Simplification: DeFi may make it possible for financial transactions to be resolved directly between participants, reducing the need for intermediaries, which are now needed to uphold the parties’ faith in the transaction. In addition, financial procedures can be made more efficient by reducing the number of parties involved and streamlining operations.

Process Automation: Through an autonomous protocol layer, smart contracts enable enterprises to automate procedures and services. Because the source code is so flexible, this functionality allows enterprises to scale certain services that were previously dependent on human execution (such as loan approvals, yield payments, etc.) and better customise services to match the demands of clients.

Innovation Enablement: Participants can inspect and test protocols, “fork code,” or take the source code and build an independent use on top, thanks to DeFi’s open, programmable, and permissionless design. This opens up the possibility of developing alternative and derivative services and goods. Moreover, having access to the DeFi protocols’ source code enables users to combine different elements to produce financial services and instruments that specifically address their needs.

Way Forward!

By enhancing the accessibility, transparency, and security of financial services, DeFi has the potential to revolutionise the financial sector. It can democratise access to financial services in areas with scarcity or unreliability of traditional financial institutions. The development of DeFi asset tokenization, made possible by blockchain technology, is the next significant step in the evolution of securitization. Unprecedented levels of transparency, transactional efficiency, and risk management are made possible by distributed ledgers. Additionally, it can facilitate the liquidation of formerly inaccessible asset classes, thereby boosting financial participation and information efficiency in these markets. Additionally, future tokenization apps are likely to be more creative and valuable, especially for assets that were previously unavailable or only accessible to a few groups of investors.

The author is co-founder and CEO, Unocoin

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