Alessandro Bianchi/Reuters
- Banks must adapt to decentralized finance to survive, a banker behind an Ethereum bond launch said.
- Jean-Marc Stenger, head of SocGen’s blockchain unit, said banks risk losing out, like Kodak with the advent of digital imaging.
- DeFi advocates argue it will revolutionize finance by removing middlemen and slashing fees.
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Banks must adapt to the new world of decentralized finance in which contracts will be created through crypto technology or risk becoming irrelevant, according to the Société Générale banker who was a driving force behind a recent high-profile digital bond launch.
Jean-Marc Stenger, the head of SocGen’s blockchain technology unit Forge, told Insider that banks face a “Kodak moment” if they do not adapt to decentralized finance or DeFi, referring to the failure of the famous camera company to transition to the digital era.
DeFi is the use of blockchain technology – the same tech that underlies cryptocurrencies – to create financial products.
It replaces the usual middlemen like banks and brokerages and instead lets pieces of digital code called “smart contracts” automatically execute, or control, financial products, taking care of things like interest payments, for example.
The European Investment Bank generated excitement in the cryptocurrency community at the end of April when it used the Ethereum blockchain network to issue a €100 million ($121 million) two-year bond. Stenger’s Forge unit at SocGen was the platform manager and settlement agent.
Stenger told Insider that SocGen – Europe’s sixth-biggest bank – sees DeFi as a big opportunity for the sector that brings the ability to do things “quicker, cheaper, [and] with more security or transparency for the regulators.”
Although some are skeptical the technology can truly disrupt the giant industry, DeFi’s advocates argue that it will revolutionize finance. DeFi’s fans say it will eliminate the need for intermediaries and central overseers such as clearing houses, and the fees they charge. Instead, a decentralized computer network would keep the contracts and transactions secure.
Stenger acknowledged the DeFi model might pose a threat to some of the ways banks traditionally make money. But he said: “When there is a shift like this in an industry, the financial industry as we speak, obviously it also means that you have to adapt and to change.
“Decentralized finance is certainly a threat to these financial institutions, which will not adapt and embrace this change, that’s for sure. There might be kind of a ‘Kodak effect’, if I may use that term, for some banks or financial institutions which again will not adapt quickly.”
He said banks would still generate returns from providing customers the services they want, which he argues will increasingly be DeFi contracts. “In today’s world, clients are paying for services where they see value-added.”