Fintech expert Jame DiBiasio, a true Sibos Insider, is a resident blogger for Sibos 2021, offering his unique take on this year’s event. This blog is part of a series released daily throughout Sibos week.</em></p> Crypto is changing the world, from CBDCs to DeFi. The question is whether banks, regulators, and fintechs can make the new world a better one.</p> What better week than Sibos for Jamie Dimon to come out swinging against “worthless” bitcoin? My Twitter feed has been aflame. The crypto tribalistas really love this sort of thing. It gives them another excuse to hang the J.P. Morgan boss in virtual effigy, and who isn’t amused by another dustup between hidebound boomers and techno-anarchists?</p> But here’s the thing: the “traditional” finance industry has moved way beyond the stale debate over whether crypto is good, bad, or ugly.</p> The arguments about whether bitcoin amounts to a hill of digital beans – and its latest price fluctuations – are so 2017.</p> Banks and legacy tech vendors are fully on board with digital cash and digital assets.</p> Mike Demissie of BNY Mellon notes the debt we owe to Satoshi Nakamoto, mysterious inventor of bitcoin, and the person who solved the “double-spend” problem of purely digital money. This has paved the way for turning the internet from the information superhighway into the value super-express.</p> Banks are increasingly comfortable talking about tokenisation. It might start off as taking traditional instruments, like Apple shares, and carve them into bite-sized, token-based servings. But this is not a very interesting endgame, as it’s just mimicking the status quo and requiring a separate infrastructure on top.</p> Instead, we should get excited about digital, blockchain-native tokens that represent securities or products governed by smart contracts. This can create the sort of provenance, transparency, and trust around sophisticated financial instruments, from repo to mortgage-backed securities.</p> The sort of thing that got the world into trouble in 2008, but reimagined with full transparency into the underlying assets, with all parties kept up to speed with an immutable layer of data. Powered by smart contracts to enable these to trade without the reams of people and paper that now go into reconciliation.</p> Today’s banks could learn to operate as lean as a startup.</p> If they get the culture right.</p> And if they keep the regulators onside.</p> This is where digital finance stops being just about the latest tech story, and becomes more about a shared future.</p> DeFi is still a puzzle to many people. It lacks the kind of AML/KYC checks and other compliance functions that crypto finance needs if it is to go mainstream. It should be possible to use onramps from regulated liability money as compliance guards.</p> Today with Covid, if I want to enter a bar, I might need to show proof of my vaccination. But once I’m inside, I should be able to mingle with anyone else – because they’ve got proof of vaccination too.</p> We need to find ways to enable this to work in blockchain-based finance. This could mean updating securities laws if required.</p> The other giant legal challenge is stablecoins. The leading units almost certainly lack the reserves they claim to have, and operate as quasi-bank instruments free of sanctions controls.</p> These need to be brought into the fold of regulated money, argues Tony McLaughlin of Citi.</p> Keeping authorities, banks, and innovators on side would deliver massive social benefits. New forms of money have enormous potential in emerging markets and underserved or excluded communities.</p> But the benefits will accrue to developed economies too. An individual or small business can turn DeFi protocols into a savings account that delivers attractive rates of interest. Who in Germany, Japan, or the US wouldn’t want that?</p> For banks, one of the most promising entrees into this world is via central-bank digital currencies (CBDCs). China is at the forefront of experimenting with retail CBDCs, and the eurozone and others are embarking on their own projects.</p> The risk is that the innovations unleashed by Satoshi do not unite us, but balkanise this new world – a world of many CBDCs, many digital forms of scrip, many stablecoins (of varying safety), and virtual-asset exchanges exploiting regulatory arbitrage.</p> That’s a fail.</p> Finding enough willpower to make these systems talk to one another is key to putting the world on the super-express of value.</p>