Customer Experience: Who Will Build the Future of Finance?

What impact could blockchains have on finance?  

According to David Thomson, CEO of Momentum Design Lab – now a part of HTEC Group – CeDefi will lead the way for mass adoption of decentralized finance (DeFi). In this interview David discusses the top trends for Blockchains globally and shares his perspective on how these technologies are changing businesses, money, the future of finance and the world itself.

1. Can you tell us a little bit about yourself, your professional history, and joining HTEC? What have you learned about your growth through your extensive experience in Web3 and Blockchain? How does it influence everything you’re doing today as a part of HTEC Group?

 For the past 20 years, I’ve been the CEO of Momentum Design Lab, a subsidiary of HTEC Group. Prior to starting Momentum, I was a Software Product Designer for both consumer and enterprise platforms. As the CEO of Momentum, I’ve had the luxury of seeing industry verticals emerge through our work. We’ve been working on Web3 technologies since the late 00s through our work in edge computing, artificial intelligence, IoT, and distributed ledger technologies. Over the past year, there has been a significant focus for us on the financial services segment of distributed ledger technologies with our customers Bitstamp and BCB Group.  

2. In your view, what are the top trends for blockchain globally. Can you highlight the aspects of technology most relevant to banks around the world?

Financial services organizations now have access to a whole new set of technologies in digital asset custody, transparent asset transfer, and near real-time settlement platforms replacing several decade-old technologies, often leapfrogging several generations of technology stacks.  

The emergence DeFi (Decentralized Finance) replaces several stacks and is both a threat and asset to financial services organizations. DeFi allows both individuals and institutions equal access to several financial protocols and asset types, such as Derivative markets, Insurance, Yield farming, Prediction markets, Yield aggregation and optimization, Decentralized exchanges, Liquidity providers, Liquidity aggregation, Synthetic assets, Marketplaces, P2P borrowing and lending, Asset Issuance, Stablecoins, Non-Fungible Tokens (NFTs).  

NFTs may be the largest and most disruptive use case for banks as this also lends itself to disruption of both services related to these products and regulatory frameworks. Not to mention the ability to streamline the purchasing of these assets, creating a better user experience for the purchaser. 

There is a big opportunity for financial services companies to integrate the above types of protocols into their offerings to the retail and institutional product offerings due to the high barrier of entry due to the lack of ease of use of cryptocurrency-based wallets. Third parties are stepping in to offer these types of custodial offerings to both types of investors, and the trend is headed to custodial DeFi or CeDefi, which is a convergence of CeFi (Centralized Finance) and DeFi.   

Ease of use is the biggest threat and opportunity to DeFi. Per the above, there is a significantly high barrier of entry due to the way that non-custodial wallets function. That said, there is a significant amount of innovation happening in this space. DeFi projects are integrating into products that streamline the wallet authentication process by either custodializing their wallet opaque to the user or frictionlessly redirecting the wallet authorization process between wallet and application. For institutional investors, products are emerging that provide access to the above protocols but via institutional compliant key storage management and multi-signature approvals.
 

3. Central Bank Digital Currencies (CBDCs) are set to be an integral part of the future of finance. It’s no longer a question of if Central Bank Digital Currencies (CBDCs) will become an integral part of the future of finance, and they will, by no means, impact stakeholders across the monetary system. It’s more a question of how it will impact them? What are your thoughts?

CBDCs may be late to the game. Led by early companies like Ripple, Circle (USDC), PAXOS (USDP), BCB group, VISA, and Fireblocks, this market is already moving well beyond what CBDCs are capable of. Financial services companies are already integrating in some of the above companies’ technologies and stable coins into their settlement and custody stacks. Ultimately, CBDCs still may be something financial institutions may need to adopt based on individual country regulations and frameworks; however, this future is unclear and will look similar to or use existing products offered in the market.  

CBDCs are merely another digital asset. That happened to be backed by a government or governmental entity. They will be a part of the framework of our lives. However, believing that they will be the asset medium of choice for the transfer of value is naive at best. We will see CBDCs backed assets similar to how we see the current stable coin markets. At the end of the day, the consumer will determine what asset they wish to accept as a means of value transfer. 

 4. Web 3 is having a major moment in the financial sector. What should traditional banks do to secure a piece of the Web 3 puzzle?

Traditional banks have their work cut out for them. This technology is emerging at a rate never seen before. If I was to give any recommendations to a bank, it would start with stablecoins and established protocols as a way of giving access to their customers. These are tried and true and represent a little risk to the institution while allowing the institution to test the waters with their consumer base as an on and offramp into blockchain networks. Accepting payments for loans or services in stablecoins should be an area that is explored.

5. Are we witnessing the end of cash?

Yes. Over the past 10 years, we’ve seen this trend with NFC-based cards, then into the major phone operating systems and manufacturers as native payment solutions. Blockchain-based technologies allow for consumers and/or businesses to disintermediate payments.  

Blockchain technologies have quite a bit of work to disrupt the P2P and P2B space. Ease of use, overall adoption, and regulatory frameworks are limiting factors at the moment. However, the industry knows this, and several companies are already hard at work to solve this.

It is important to note that technology alone will not bring this change on.

6. DeFi is taking the world of FI by storm. According to a recent report, Lessons learned from decentralized finance, conducted by Netherlands-based ING Bank, which analyzed the risks and opportunities associated with the exploding of decentralized finance (DeFi) space, “the best of both worlds is achieved if centralized and decentralized financial services cooperate. “How much do you agree with this?

To keep up, financial institutions are going to need to adopt a CeDefi strategy to add layers of security, compliance, and custodial solutions to match the needs of the upcoming regulatory frameworks in each unique jurisdiction. The benefit of decentralized finance is that the market is wide open for any wallet address to participate. Both venture capital and hedge funds have been actively participating in DeFi products since the DeFi summer of 2020. This trend will eventually hit the retail segment of the market.

7. Handling information on a wallet (or multiple wallets) and the irreversibility of unfortunate events caused by the lack of available recourses against scammers can be intimidating. How, from your point of view, can current blockchain technologies be improved to be more user-friendly?

Wallets will need to start to integrate different levels of security, similar to anti-virus software on computers, so that they can check the smart contracts for trustworthiness before it transacts. A number of companies are already profiling wallet addresses with credit scores based on a graph of prior activity and related wallet addresses. This will assist wallet providers with verifying if the counterparty is someone the user should transact with.

8. How is HTEC helping companies enter the Blockchain space?

At Momentum, we’ve been helping companies with their product strategies, design execution, and development for distributed ledger-based products since 2015. We’ve worked with large cryptocurrency exchanges, marketplaces, NFT platforms, wallet management, multi-exchange trading, atomic swap markets, p2p/p2b payments, and global settlement platforms. Now, as a part of HTEC Group we will continue to focus our efforts on blockchain as one of the emerging subdomains of FinTech.  

9. The future of finance. How do you see it?

Finance is going to be a blend of P2P, P2B, and B2B, similar to the current state with cash. Digital payments will end up being a hybrid between centralized and decentralized services where counterparties will be transacting directly between each other, through smart contracts, and through incumbent intermediaries. There is still a lot of work to be done in the banking system for a bank account to wallet transactions. That said, neobanks and centralized exchanges are starting to look more like one another, and there may be a massive shift away from traditional banks as these services continue to expand in the market. 

Products and protocols built for P2P or even blockchain gaming can be easily used or repurposed for the P2B, B2B world. Finance will be forever transformed as people that didn’t have access to these products will gain access due to the overall decentralized and public nature of blockchain.  

The sharing of protocols, though, lends itself to a world with less protocol development and more user experience development where the experience is tailored to the end-user rather than the underlying technologies.