The transformation of banking: from branches to DAPPS


If we cross two coordinates in a graph: in the vertical, human progress and in the horizontal, time, we would find an upside-down L. A practically flat baseline, with hardly any growth in the first 100,000 years of human history and suddenly a sharp upward growth since the mid-twentieth century representing the rapid progress.

Today, we are in the feudal age of the Internet, where a few, the GAFA companies are masters of the digital space, accentuating the concentration of power until the arrival of Bitcoin. The disruption that Bitcoin represents is so great that for the first time we can exchange value on the Internet in a reliable way without the need for trusted third parties. We know that a digital asset is unique and not duplicated.

Now, banking has a real alternative. Bitcoin and crypto assets are driving the transformation of the financial sector’s business model. Soon the first phase of denial and resistance will been overcome. This is manifested in new products that in a more user-centric way take advantage of the innovative qualities of blockchain technology (decentralization and immutability), in internal processes of contracting and optimized marketing of these same products or even at the organizational level with important changes in reconciliation processes. All this, overcoming a traditional model and a regulatory scheme that did not give much room for innovation and was detrimental to the end customer.

We are witnessing a correlation and integration between the crypto and traditional worlds in the financial markets. Institutional money buys and sells crypto assets based on the behaviour of the rest of their portfolios and liquidity needs. This trend highlights that investors recognize all the advantages and potentialities of the application of DLT (Distributed Ledger Technology’). Statistics show that the population is becoming increasingly aware of their advantages and therefore more and more people are deciding to take the leap into the crypto world.

Given this scenario, regulation will be a key moment and a turning point for a reaction from financial institutions which among other actions will end up launching their own DAPPS and DEFI protocols, since they have the collateral and liquidity to do so, recovering the capital flight they are suffering. DAPPS stand as the new paradigm and DEFIs represent a change in the business model of traditional banking and the opportunity to put the user at the centre of the value model.

Some assets have focused the debate following the significant fluctuation of crypto markets and the regulator will have to focus its efforts on ensuring an adequate regulatory framework for them. On the one hand, the stable coin, a key piece in any token economy, which allows minimizing investment volatility in times like the current one. On the other, CBDCs (Central Bank Digital Currency), which represent the bet of the current status that avoids decentralization. Something fundamental in the concept of crypto asset, but taking advantage of the rest of the features of blockchain technology. The fit between CBDC and stable coin and the way in which it is regulated will mean the disappearance of some of the stable coins and others will agree with their respective central banks on parity in order to continue operating. In this context, it will be key for States and organizations to adopt a pedagogical role to accompany the investor in the knowledge of this type of crypto assets and to show the differences between the two.

Regulation will also make it possible to witness how most fixed assets, such as real estate, intangible assets such as copyrights, debt and even equity will be tokenized in order to increase their liquidity, fractionate the minimum share of ownership and accelerate the speed of transfer between parties. Tokenization processes involve new digital business models and the possibility of monetizing these assets through secondary markets, allowing for a return on investment at levels never seen before.

We have before us one of the greatest challenges in history, not in vain we are talking about the migration of our centralized social organization to a decentralized organization (at least partly).

The two worlds are going to mix and interact creating bridges between them until in the long term Bitcoin and some alternative cryptos mature enough as an asset class and we are ready to move to the next wave of innovation.

Lluís Mas Luque, co-founder and president of BELOBABA, one of the world’s first regulated crypto investment funds, tokenized with a security token.