Financial institutions are constantly looking for ways to improve their operational efficiency, reduce costs and enhance customer experience. Decentralized finance (DeFi) presents an opportunity to do all three by giving them the ability to deal with each other directly, without intermediaries.
To date, very few inter-institution interactions have happened without an intermediary like an exchange or a clearing house, but distributed ledger technologies (DLTs) represent a new way to offer the critical element of trust that has historically come from intermediaries.
How can Bank A trust Bank B to honor the exchange rate they agreed to in transaction? How can they trust that a transaction is not manipulated after the fact by a counterparty and that all the data they are taking action on is coming from legitimate sources? These are just a couple of examples of the value intermediaries provide. DeFi is about using DLT to decentralize and disintermediate those functions so institutions can save money and and improve things like settlement times.
Now, as you can imagine, these transactions are happening at a very high rate around-the-clock. De-centralization comes with a WAN element and that often means higher latency, and the chain itself being distributed slows things down. Does that mean all use cases – post-trade, FX settlement, fund transfers, etc. – are ready to accommodate this new way of doing things? There is a balance that needs to be struck between the event-driven nature of their business and the flow-cautious, distributed nature of DLT.
Solace has helped several organizations implement DLT. For instance, Cobalt uses us to streamline post-trade foreign exchange settlement and provide risk and data services to the FX market’s leading participants. Its cutting-edge DLT creates a single, verifiable version of each trade – reducing risk and operational costs while achieving faster settlement.
Solace is taking another step forward in the enabling DeFi through the partnership with BCware. The two companies will provide a high degree of abstraction, orchestration and methodical data movement which will give customers the ability to benefit from the speed and responsive of event-driven architecture with the trust and cost-savings of the DLT.
I interviewed Solace’s resident DeFi expert, Tom Fairbairn, for his take on DeFi – what it is, why it’s so important, and where it’s going. Check out this 30-minute video to hear more on:
- Financial institutions and the settlement/payments use case
- How to bridge the event-driven world and the slower world of DLT in the FSI industry
- How an event mesh helps with the interface between DLTs and core systems
- The Solace-BCware solution in terms of vaults and underlying assets
- Asset tokenization
- How to start bringing event-driven technology and DLTs together