Reflection on crypto/blockchain adoption

Sometime at the start of the year, I had published a one slider on the short/medium/long term view on Crypto / Blockchain adoption. It has been more than 9 months since then and the market cycle has turned bearish. In this blog, I reflect on on how my point of view on some of these use-cases has changed (or not changed) in the past few months.

Crypto custody — Feel that this continues to be the strongest use-case in the adoption cycle. More so because it is a pre-requisite to provide additional services such as payments, trading, deFi, staking etc. Crypto native firms such as Celsius, BlockFi and Voyager have dented customer confidence by their poor handling of their customers assets. Retail and institutions would now look for trusted entities like Banks to custody their digital assets (assuming that self-custody is not an option for them).

Blackrock now offers crypto custody in partnership with Coinbase. Banks such as Citibank, BNP Paribas, Statestreet etc already have announced their plans to roll out custody services. Custody technology providers such as Fireblocks and Metaco have emerged as leaders in this space. Markets in crypto asset (MiCA) regulation now gives regulatory clarity on crypto custody.

Tokenization of assets — Tempted to move this use case to the column for ‘short term’ adoption. The operational efficiency of tokenization is a major force in driving adoption. Regulatory clarity in countries such as Switzerland and Germany have helped the uptake of projects on Tokenization. UK’s asset management industry is pushing for tokenization of shares/funds.

Payment settlement using Stablecoins — The recent implosion of the stable-coin UST of the Terra ecosystem will result into a lot of regulatory oversight on Stablecoins. The unclarity on regulation will stifle the growth of legitimate use cases for at least the short run. Negative interest rates on bank deposits had impacted the growth of EURO Stablecoins. With the rising interest rates, we will see some adoption of EURO Stablecoins.

Lending cryptocurrency and DeFi- Implosion of the UST in the terra eco-system and the bankruptcy of 3AC had a knock-on effect on many big institutions in the crypto eco-system. Customers will not accept the opaque lending practices of traditional financial institutions in Crypto anymore. Feel that customers will demand the on-chain audit-ability of crypto assets. Despite the turmoil in the market, the established DeFi players such as Uniswap, AAVE, Compound etc showed no signs of weakness. Protocols that have sufficient savings in the treasury will be able to use the bear market to build products with better market fit.

Metaverse — Believe that despite the hype, Metaverse as a banking channel will still take a long time. Since the point of view was posted, JP Morgan launched its Onyx lounge in Decentraland and HSBC bought virtual real estate in the Sandbox. Banks in experimentation phase to identify a suitable use case.

CBDC’s — Privacy concerns weigh heavily on CBDC’s. Critics have questioned the need for CBDC’s.. and rightly so. Digital Euro, for example, has prioritized the use case of P2P, POS and e-commerce payments in the first release. These use-cases rank high on a policy perspective but not so high from a user need perspective. The market is currently well served with the existing payment methods. The use case on Web-3 and programmability is not prioritized as yet. In view of the recent hacks on smart contracts, it seems highly unlikely that a central bank would support such developments on CBDC.

There is one non-finance related use-case that I would like to mention as well. Feel that it is a forerunner of things to come — Starbucks announced its Web-3 initiative of issuing NFT’s as a part of their loyalty program. These NFT’s would unlock access to benefits and immersive experiences on Web-3 platform. This is one amongst the many other Web-3 initiatives announced in the past few months — Meta, Disney, Reddit, NFL etc.

Missed out on any point… let me know.. :)

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