Financial System Challenges & Opportunities

Financial Institutions: Intermediaries of Financial Assets and Liabilities

Functions

• Investments (aka. Store of Value)
• Credit (aka. Borrowing Value)
• Risk Transformation
• Advice regarding Financial Assets and Liabilities

Sectors

• Commercial Banks & Credit Unions
• Investment Banks & Brokerage Firms
• Insurance Companies & Underwriters
• Collective Investment Vehicles, Mutual Funds, Pension Funds & Annuities
• Asset Managers & Financial Advisors
• Exchanges, Clearinghouses & Settlement Organizations

Financial Markets

• Primary Markets
• Secondary Markets
  • Exchange Trading
  • Over the Counter
• Asset Management
• Market Infrastructure

Ledgers

• Records Economic Activity and Financial Relationships
• Records Transactions and Accounts

Payment & Settlement Systems

• Method to Amend and Record Ledgers for Money & Financial Assets
• Authorizing, Clearing and Recording Final Transfers of Value

2008 Financial Crisis

• Weak Underwriting & Predatory Lending => Subprime Mortgage Crisis & Housing Bubble
• Easy Credit & Financial Derivatives => Increased Leverage & Interconnectedness
• Poor Risk Management & Incentive Structures => Many Vulnerable Financial Institutions
• Multiple Failures => Systemic Loss of Funding & Liquidity => Contagion & Near Collapse in Highly Interconnected System

Opportunities

• Legacy Customer Interface, Data, & Processing Systems
• Economic Rents
• Concentrated Risks
• Infrastructure Systems’ Costs & Counterparty Risks
• Periodic Crises and Instability
• Financial Inclusion

Potential Use Cases

• Payment Systems - Cross border, Large interbank, & Retail
• Central Bank Digital Currency & Private Sector Stable Value Tokens
• Secondary Market Trading – Crypto-exchanges & custody
• Venture Capital - Crowdfunding through Initial Coin Offerings
• Clearing, Settlement and Processing – Securities & Derivatives
• Trade Finance & Supply Chain - Digitizing paper-based processes
• Digital IDs and Data Reporting