‘Digital Assets Are the Next-Generation Financial Services Rails’
Digital assets are the future of financial services, and if institutions want to transition from traditional finance (TradFi) to the world of decentralized finance (DeFi), they will need to invest in learning, technology and data, according to Shawn Douglass, CEO of Amberdata, a leading provider of digital asset data and market intelligence on the crypto economy.
“This is the biggest transition that I’ve seen in my career because it combines a paradigm shift in financial services with a paradigm shift in technology that will enable every person on the planet, from a financial inclusion and financial services perspective,” he tells Coalition Greenwich Head of Fintech Research David Easthope during a webinar titled “The Data Powering Digital Asset Markets.”
Growing Institutional Participation
While the last two years were “painful” for the digital assets market in the U.S. from a regulatory perspective, institutional interest is clearly increasing. “The green shoots are growing. We’re on the cusp of tidal change being enabled by regulatory clarity,” says Shawn Douglass.
Today, leading banks like Citi, Goldman Sachs, J.P. Morgan, and DBS are tokenizing real-world assets. Globally, regulators are weighing in with the European Union’s new Markets in Crypto Asset (MiCA) regulatory framework, Dubai’s VARA regulations governing virtual assets, and the Monetary Authority of Singapore’s Project Guardian initiative on DeFi, for instance.
Recent research by Coalition Greenwich also shows that 25% of asset managers and hedge funds are creating dedicated senior roles to explore the market opportunities in digital assets.
“To me, that's a huge indicator that this is not some pipe dream; this is happening right now,” states Shawn Douglass.
Technology as a Barrier to Adoption
Undoubtedly, technology remains the biggest challenge for institutional adoption of digital assets. “Institutions today run on legacy systems. They've made prior investments and created technology moats that are sunk costs. That's why it's hard to drive change in profitable companies with successful moats,” he explains.
The new technology is complex. And, with the digital assets market participants transacting around the clock across jurisdictions, there’s a paradigm shift on what institutions “can control and influence.” This requires changes in business processes and institutional learning to build a sustainable business in digital assets.
“You have to have people willing to learn, you have to have the data to inform your decisions, and then you need to act upon the opportunities,” asserts the Amberdata CEO.
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According to Shawn Douglass, now that the early data problems relating to KYC, AML and custody of digital assets have been solved, the current need is market intelligence data. “To build data-driven businesses, the data's got to be right, it's got to be highly available, and it's got to be institutional-grade, which is not free,” he says.
Digital asset markets are on 24/7, transactions are spread over public and permissioned enterprise blockchains, and there is a proliferation of “some 30-plus exchanges and six to seven derivatives exchanges that matter.”
“A blockchain is like a database, an application server and an incentivized economic system that is all transparent. But you need to decompose and turn that raw data into actionable information. And that is incredibly hard…. There's a complexity problem, a cost problem and a learning curve,” he explains.
That’s where players like Amberdata step in by providing “visibility into what's happening on every spot market, every derivatives market, every options venue on chain.”
Early Days for DeFi
The growth in digital asset trading volumes notwithstanding, these are “still early days” for DeFi, Shawn Douglass believes.
DeFi currently comprises the decentralized exchanges that “facilitate trades on a price curve based upon assets in a pool.” There are also lending protocols for people to generate yield, assets are dynamically liquidated, and risk management is built into the protocol. “It’s all programmatically done, which is a huge innovation from a transparency and trust perspective,” he says.
DeFi also includes stablecoins. Today, leading firms are using them on private permissioned chains for use cases like generating yield, remittance and collateral/repo, among others.
While it’s hard to predict what will come next, one thing is clear, asserts Shawn Douglass: “Digital assets are the next-generation financial services rails.”