Blockchain finance is still experimenting like crazy, but a bridge between traditional finance and start-ups is less than two years away, fintech expert Efi Pylarinou told finews.asia.
Efi Pylarinou, what stood out to you most in compiling the report you co-authored on blockchain in wealth management?
Blockchain is on the cutting-edge of fintech and aims to genuinely disrupt finance. It’s early days, and part of it is unregulated – especially DeFi [decentralized finance] is entirely unregulated – so there’s a huge amount of experimentation and crazy stuff going on.
Can you give us examples of things being put into practice?
Codefi, the operating system by Consensys, is interesting because they've started working with traditional asset managers, especially in the real estate space. Ficas just launched the first actively-traded certificate in cryptocurrencies which is listed on the SIX exchange. It’s exciting as a step to bridge the old and the new world. Another company, Securrency, is focused on building compliance in the tokenization process.
These seem to be exceptions – how quickly will more of these types of start-ups make their way into the mainstream?
These things take time and develop slowly, but then suddenly gain a lot of momentum. We're building pieces of puzzles to be assembled together.
When will that happen?
It's difficult to predict. Some areas, like custody, have advanced considerably with great offerings.
How receptive has traditional finance been?
There is increased buy-in from big financial institutions like Fidelity that has built a whole new business around custody or TD Ameritrade, which offers crypto wallets and capabilities.
That «buy-in» hasn’t quite trickled down to end users yet.
We definitely need to be patient: we shouldn't expect a sudden move over. Legacy systems in banking have not been upgraded even to the tune of 50 percent via fintech. Imagine going one step further, into blockchain as an infrastructure!
But traditional finance seems to mainly be interested in blockchain for infrastructure efficiencies, or in tokenization?
A few fintech companies like Lykke [a digital asset exchange] or Crescofin [a blockchain start-up offering higher interest rate savings accounts than traditional banks] are developing the infrastructure side. It’s imperative for wealth and asset managers to get up to speed before investing. These innovations being experimented with and in use now, are going to be part of a major transformation.
How receptive are Switzerland’s wealth managers to this?
Let me use an analogy: I think they've dated a couple of times but in secret. Don't forget that the cryptocurrency market remains very much over the counter. More than 50 percent of Bitcoin and Ether are held in addresses over a year, which means that there are many «hodlers» out there.
«You had to know who has what – and try to get it»
This reminds me of a lot of OTC markets, like bonds and emerging market assets, from my early career on Wall Street. You had to know who has what, and try and get it.
So regulated exchanges are the missing link?
We don't have enough trading volume on regulated exchanges because we don't have exchanges for security tokens. The more exotic, hybrid ideas with the potential of creating really new products are difficult for regulators to categorize. On the other hand, there’s a benefit of understanding this emerging asset class early on.
Money laundering through cryptocurrencies is a huge worry for banks.
There are bad actors in every market, process, and business – cryptocurrencies is no different. I think what people in the digital asset space are saying is, «dear regulators put the processes in place, so I can check the boxes, and then I'll be fine.»
«The biggest risk to cryptocurrency is taxation»
That's why we have centralized regulated trading venues rather than decentralized, unregulated ones. That is why it's worthwhile to understand the quality of the processes of each crypto exchange.
How quickly do you think we will see banks – like UBS – tokenizing assets?
I think that in less than 24 months we will have a couple of players working on proper licensing. We’ll also see more partnerships, if not acquisitions. From Deutsch Boerse in Germany, SIX in Switzerland, in the U.S., and in Singapore – there's a lot going on. It just needs time to be integrated and scale.
Will a bull market for bitcoin accelerate the adoption of digital assets?
The entire tech sector and startups are struggling with reduced funding right now. That can have a negative impact on the development of the space.
Is regulation the biggest worry for digital assets?
The biggest risk is taxation. I think that if a certain government decides to stop the growth of the cryptocurrency space by taxing it unfavorably, it will have a major impact. In the U.S., the debate of whether a coin is a security or not has caused a lot of ventures to move away. Regulation, securities laws, and taxation are the biggest risks.
Efi Pylarinou is a fintech «influencer» who began her career in 1993 in fixed income derivatives at Salomon Brothers. The Greek native worked at Bankers Trust, Cowen (Société Générale's U.S. broker-dealer) and a U.S. hedge fund boutique and taught real estate finance at McGill University in Montreal. Pylarinou, who frequently speaks and consults on topics including artificial intelligence and big data, is the co-author with Simon Ramery of a recent report on blockchain in wealth and asset management. Based in Fribourg, Switzerland, Pylarinou holds a Ph.D. in finance from the University of Tennessee-Knoxville and is a certified Kundalini yoga teacher.
