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2022 will be a year of realisation for the fintech industry, one in which, according to Marten Nelson, CBDCs, CeFi and regulated liabilities networks will become widespread.
As Co-Founder and CEO of M10 Networks, the digital money platform for banks, Nelson offers an invaluable insight into the current direction of global fintech. Prior to his current standing, Nelson held prominent positions within such companies as Token Inc., International Telecommunication Union and Edtuit Inc.
Here, Nelson utilises his extensive industry experience to foresee the introduction of new technologies and regulations this year:
What’s in store for fintech in 2022? Good question. The global events of the past two years should make any sane person wary of predicting much beyond lunchtime, however, I think I can safely weigh in on the trajectory of some of the top trends from the world of fintech.
Without further ado, here are five hot takes for 2022:
#1. DeFi goes CeFi
The Wild West days of digital money are drawing to a close. In 2022, we’ll see the pendulum swing back toward centralised finance (CeFi) as the disrupted (banks) take back the reins and disrupt the disruptors.
Banks are beginning to recognise that it is possible to use digital infrastructure to realise fast, cheap, instant money movement within our current two-tier banking framework. Web 3.0 might be the current craze, but it’s worth noting that each of these decentralised platforms has its own cryptocurrency, and that these currencies must be quoted on, ahem, a centralised crypto exchange in order to provide the needed liquidity.
As banks get hip to the fact that DeFi doesn’t own the market when it comes to 24/7 access to digital money and instant, inexpensive payments, it will start the shift of digital payments and transactions back toward the purview of regulators and halt the dreaded disintermediation.
#2. Stablecoins will see regulatory action
Speaking of regulation…the very nature and design of stablecoins, not to mention their relationship to regulated reserve money, makes them a prime target for regulators. Add big bank support and central bank officials keen to minimise risk and you get perfect conditions for government regulators to start making moves.
Even with regulatory backing, stablecoins will not be enough to dissuade governments from exploring other forms of digital currency. Read on.
#3. A dozen new CBDC POC/pilot programmes will emerge
Touted as inclusive, convenient, and secure, the Bahamian Sand Dollar, followed closely by the Chinese e-CNY, has paved the way for a host of other central banks to start piloting digital currency. No one wants to be left behind, so in the coming year, we’ll certainly see retail CBDC POC or pilot programmes in main economies such as the United Kingdom, European Union, United States, Australia, Hong Kong, and Singapore. Watch for other programmes to come out of developing economies in the Middle East and Africa too.
#4. Interoperability will be a hot topic for CBDC in 2022
We live in a global society and for CBDC to work well, it must be interoperable with other CBDCs and digital currencies. If I send my friend in London E-Krona, it must retain its value and be useful to him or I won’t use it and the whole thing will fall apart.
So, the issue of multi-currency, cross-border interoperability will come up as one of the most important aspects of CBDC creation.
#5. The first regulated liabilities network will launch
What will make all these developments in crypto and digital currency possible? Tony McLaughlin, Head of Emerging Payments at Citi, thinks it will take the development of a Regulated Liabilities Network (RLN).
In one of the first papers on the topic, he states: “Tomorrow’s money needs to be global, so we may envision a constellation of interoperable Regulated Liability Networks each founded on national currencies and supervised by local regulators.”
In the context of CBDC, the rise of the cashless society is often mentioned as one of the motivations. Yet while I love not having to carry and pay with cash, I am aware of the existing limitations of today’s cashless systems, which depend on power being available and reliable connectivity to some backend services.
We need a solution should those services fail, but why wait for CBDC to address that problem?
An RLN with support for offline payments may also be the most efficient and least risky path towards a cashless society. I’m not a gambling man, but the successful launch of the first Regulated Liabilities Network (RLN) in 2022 is a bet I’m willing to make.
Payments modernisation is the future
One thing I know for certain: the future must include payment modernisation.
I’m a payments nerd, not a crypto fanatic, but I believe that emerging models for digital money based on private blockchains will make an RLN a real possibility—soon. Central banks won’t have to choose between creating CBDC or going the way of the dinosaur.
Instead, they’ll be able to offer the same benefits that DeFi does by joining a network of regulated digital liabilities conducted through the transfer of tokens. This network will allow for central bank money, commercial bank money, CBDCs, stablecoins and other tokenised money to operate within our current – albeit modernised – system.
A modern RLN based on a shared hierarchical ledger could use state-of-the-art authentication, tokenisation, access management, and other tools which are generally not available to your average commercial bank, making the network highly secure.
And perhaps most importantly, payment modernisation based on a shared hierarchical ledger system can be realised in a matter of weeks or months, instead of years or even decades, making it a reality instead of a pie-in-the-sky prediction.
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