2022 was a turbulent year for Decentralized and Centralized Finance (DeFi & CeFi): what have we learned? And what will happen next? Markus Abbassi, Head Digital Assets at Kaleido Privatbank AG, was our guest in the last livestream of 2022.
Is interest and trust in cryptocurrencies decreasing? "No," says Markus Abbassi in conversation with Kuble partner Christian Aichhorn. "Those clients who have been around for a while remain calm and continue to invest. However, it has become more difficult to convince new clients of digital assets."
The finance industry has had a turbulent year: there have been bankruptcies, crises and losses in millions. Centralized Finance (CeFi) and Decentralized Finance (DeFi) were equally affected. But what are the differences between these two terms?
The blockchain works perfectly
The crucial question is: "Who do I trust to manage my finances? When I go to a bank, I trust it to do the accountant right. So if I deposit 100 francs in the bank, I trust that I will get back at least 100 francs plus interest." That, he said, is the centralised financial industry. "With DeFi, on the other hand, I don't trust a central counterparty, but the blockchain." That is DeFi's USP: "I no longer have to go through a bank, I can do it all myself."
The domino effect began this year with the demise of Terra Luna, says Abbassi. "That was a stablecoin built on a mathematical algorithm. Mind you, it's the only purely decentralised project that failed this year. Nevertheless, it had a chain reaction as a result." However, he said it would continue to happen that certain providers, especially smaller ones, would drop out: "We are still in an early innovation phase. Risks are not managed properly or insufficiently by many."
What is interesting, however, is that the technology has always worked flawlessly: "The blockchain ran smoothly, like Swiss clockwork. Those mishaps that happened were the result of wrong management or lack of know-how." It is particularly noteworthy that the conversion of Ethereum from Proof of Work to Proof of Stake went smoothly: "It was like changing the turbine of an aeroplane during a flight."
Will there be no need for banks at some point?
"Yes, I am a big advocate of DeFi," Abbassi admits bluntly. "The model offers an incredible number of new, innovative products and opportunities. But banks will not become obsolete because of it." There are many voices that say bitcoin is dead: "But what we see, every day in our exchanges with our customers, shows the opposite: more and more people are interested in it."
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Nevertheless, Abbassi does not deny that the industry has suffered a loss of confidence this year. Are cryptos like pubescent teenagers who overestimate themselves? What will it take for the industry to grow up? "Four years ago it was a child," says Abbassi, "now we are in a phase towards growing up." Established companies and institutions that are now getting involved will ensure that the teenager is tamed with legal requirements and regulations.
So far, Switzerland has found a good way to do this, says Abbassi: "The country has a technology-neutral view. That is good. Unlike Germany, it is possible to tokenise shares in Switzerland, for example." Unfortunately, the EU is taking a different approach to regulating the crypto industry: "Pouring new wine into old wineskins isn't helpful."
"I am confident"
And what happens now? Will the crypto market recover from this year of crisis or will the domino effect continue? "The question is what is this domino effect," says Abbassi. "Is it the bitcoin price that continues to fall? Or is it the fact that more companies go bust?" In the case of the latter, the chain reaction will probably continue, he says.
"But in terms of prices, I don't think it will go much further down. Because of the relatively illiquid market, it may well be that prices remain volatile. But because blockchain is very innovative and evolving, we should have the biggest runaway down behind us. I am confident."
About Him: Markus Abbassi is an entrepreneur focused on digital assets and innovation. After co-founding Alethena, he built the tokenisation business at Sygnum, the world's first digital asset bank. Since February 2022, he has been building the Digital Assets theme at Kaleido Private Bank as Head Digital Asset.
Note: This article and the Live Talk do not constitute financial advice. If you invest in cryptocurrencies, be aware of the risks or contact an expert.