Madalin Muraretiu, Co-Founder at COINsiglieri, concentrates on the specific contributions that Web3 delivers to the financial sector, as well as the potential effects and ways to profit from this emerging world.
We have the privilege of being able to witness as technology changes the economic structure in ways that were previously beyond our capacity to imagine. With its distinctive set of rules and approaches, blockchain technology, which at first only provided an alternative system for value transfer and transaction processing, has developed into a completely new economic framework called Web3. Before disruptive concepts become overly complex, it is crucial to build a comprehensive understanding that considers all relevant factors.
Centralised finance was created thousands of years ago when people were using barter systems to exchange goods and services. Since then, it had various flaws which led humanity to shift to gold coins, which were an early form of currency, almost universally accepted as a store of value.
In ancient Greece and the Roman Empire, temple-based bankers were giving out loans while receiving deposits and changing money. Tracing the historical roots of the modern banking system, leads to medieval and Renaissance Italy, particularly wealthy cities such as Florence, Venice, and Genoa. In 14th-century Florence, the Bardi and Peruzzi families dominated banking but the most famous was the Medici Bank, which was founded in 1397 by Giovanni Medici.
A bank is a financial entity that accepts public deposits and develops demand deposits while also issuing loans. Lending operations can be undertaken directly by the bank or indirectly through capital markets.
Fast forwarding to the present time, ‘traditional finance’ today refers to a wide range of financial services and solutions enabled by trusted third parties such as banks. Let us refer to them as centralised finance (CeFi).
In many ways, traditional finance today is not so traditional anymore. The emergence of fintech has significantly impacted it and made it unprecedentedly innovative.
Numerous financial sectors, such as banking, insurance, trading, asset management, and more, have benefited from fintech's technological improvements, but CeFi's infrastructure limitations have basically stayed the same over the years:
They are based on an intermediary structure. They act as brokers and trust agents, settling and providing liquidity to the financial system. Intermediaries have become increasingly important players in the financial industry over the years.
They rely on permissions and censorship. Banks may have an overly strict compliance policy, which implies that every payment made by an organisation is viewed with high suspicion. In the end, transactions that appear ‘questionable’ for groundless reasons might result in the company's bank account being suddenly blocked. Recovering the account takes a lot of time and work.
Lack of privacy. We often get harassed with ads from companies that we have never clicked on. Is our private information deemed to be confidential if it is bluntly shared and disclosed without user consent? Users must always give their identities and give sensitive personal information to banks to use services.
Consumers with poor credit histories and low incomes are not adequately served. As a result of their youth and lack of strong credit history, consumers are frequently categorised as ‘risky’. The same is true for small and medium-sized businesses that have recently opened or are likely short on cash to offer the necessary collateral. These consumers are systematically denied access to finance all too frequently due to discrimination.
Web3 refers to a broad range of applications that use blockchain technology to provide decentralised substitutes for established service providers and market systems. Web3's mission is to overcome all these old-school challenges and offer a better reality in finance instead.
Web3 aims to get rid of the ‘good old traditions’ of CeFi and change the industry's paradigm. Its main objective is to fundamentally change the whole architecture of the financial infrastructure. DeFi is this innovative financial system (decentralised finance).
Blockchains. Due to its features and development popularity, the majority of DeFi services are currently running on the Ethereum network, but cross-chain ecosystems are starting to take shape.
Digital Assets. Within a blockchain network, tokens stand for a value that can be traded or transferred. The first digital asset based on a blockchain is Bitcoin.
We, at Coinsiglieri, are a one-stop shop for startups, transforming zero into one since 2017, and have built the first crypto index just like the S&P500, using blockchain technology (e.g. Imperium-the crypto index).
Smart contracts. A smart contract is a piece of computer code that enables transactions to be carried out automatically when specific requirements are met. They are tamper-proof, which eliminates the possibility of any intervention from outside parties. In DeFi, trustworthy middlemen are replaced by smart contracts as a method of transactional intermediation.
DAOs. DAOs offer a decentralised governance approach and replace the corporate management hierarchy of traditional organisations. The principles set out in blockchain-based smart contracts govern how voting, decision-making, and other business-related activities are carried out.
Dispersed data storage. Users will soon be able to control and manage their data in a non-custodial way. Instead of storing user data on a single, unmanageable server, the goal is to distribute it over several independent network nodes.
One of the biggest challenges of 2023 for Coinsiglieri is building a platform with different modules that has real-world use cases in Africa. One of the modules is a data centre serving all of Africa, eventually.
Dapps are decentralised applications. Smart contract-based software programs are frequently combined with conventional web-based user interfaces.
Oracles. DeFi services can be combined with data feeds that provide information from sources outside of the blockchain, like the latest quote of a stock or fiat currency.
Cross-chain communication and interoperability mechanisms like bridges and swaps, wrapped tokens, and hashed time locks, etc., enable value transfer between blockchains while maintaining the security of data and trustworthiness.
Ease of access. There is no need for KYC/AML, credit score evaluation, or risk profile. All a user needs is a basic knowledge of the protocols that are to be used and how to engage with the infrastructure.
Incentives. DeFi and the overall crypto sphere have a great method for rewarding users that are taking an active part in the growth of a network or protocol. Users receive incentives for getting involved in the governance of networks, validating transactions, protocol improvement, and marketing advocacy. Each protocol has its own incentive structure to maintain community members’ long-term loyalty and engagement.
DeFi is intended to be completely decentralised in theory, though the truth is a little more complicated and convoluted. Institutions and other certain categories of market players are frequently prevented from engaging in business with unregulated parties. Many DeFi protocols reserve the right to unilaterally insert KYC/AML checks if the relevant law demands it.
Let's examine the most advanced sections.
Stablecoins. In essence, stables serve to secure a token's fixed value in relation to a certain asset, most frequently the US dollar.
A stablecoin with elastic supply, pegged to the USD, is the perfect solution Coinsiglieri is building for Malawi, a state in Africa where the spread is approx. 20% from the local currency to USD.
Decentralised exchanges (DEXs) avoid storing user assets in their own custody; access is granted through non-custodial wallets. Transactions are automatically handled by smart contracts between peers or against a liquidity pool. DEXs can run order books, but the most well-known type of DEX, automated market makers, completely eliminates the conventional order book.
Lending protocols are placing borrowers and lenders in close contact, allowing them to have complete ownership of their assets. Smart contracts make lending transactions easier and record them on certain blockchains. Users are not required to disclose any personal details or proof of favourable credit history.
Asset tokenization. By using NFT technology, Coinsiglieri is able to assist our partners at Assetto, a go-to-high-value real estate assets tokenisation protocol, to achieve their goals.
Decentralised derivatives are tokens that draw their value from the behaviour of an underlying asset and are known as decentralised derivatives. In contrast to traditional derivatives, smart contracts may be written with specific conditions, excluding the requirement for brokers.
Insurance protocols are concerned with the risks that are unique to DeFi, such as those brought on by smart contract errors, efficient hacks of DeFi projects, and other failures. The decision to pay claims is made by claims assessors, and claim payments are often enforced via token-based financial rewards.
Aggregating solutions. These products facilitate interaction between various DeFi services.
Liquidity mining protocols that maximise earnings from collateral supply and liquidity, like Yearn Finance.
Integrated gateways (Zapper and Zerion) that decrease complexity for the end users.
A single hub trading system that links several independent exchanges into a single automated non-custodial trading centre. High-speed cross-chain transactions at cheap costs.
Financial NFTs can significantly transform and enhance the financial environment.
Users can now mint an NFT that will next act as a smart wallet that can store multiple assets and is transferable P2P. Imagine the end user moving 5 tokens from one wallet to another. It would require a fee for each transaction, instead of just one when moving the smart wallet itself.
Non-custodial liquidity mining solutions started to become mainstream due to the adoption of the phrase: ‘Not your keys, not your tokens!’. In DeFi, users have to send their tokens to a smart contract that will then start sending them rewards based on individual criteria.
Non-custodial staking means that users will never renounce ownership of their assets, but they will subscribe their tokens to different farms. This way, the same assets can be subscribed to different farms that will accrue rewards simultaneously.
The financial sector has been completely transformed by Web3 technology. It has allowed us to approach financing from a different perspective and provide a flexible and open-ended solution that serves a larger range of clients. While it's difficult to say if DeFi will completely replace traditional banking at the moment, one thing is certain: progress will be made toward a greater economy and a more equitable distribution of wealth.
About Madalin Muraretiu
An alchemist in blockchain technology, delivering disruptive projects worldwide. CEO for a decentralised protocol, shifting the entire architecture of DeFi by introducing NFTs.
Twelve years involved in capital markets and business development for several financial corporations around the world, including Playtech PLC, justifies his visionary strategy regarding DeFi infrastructures and monetisation.
About COINsiglieri Agency
COINsiglieri Society is the one-stop shop for startups. Transforming zero into one since 2017. We simplified the whole process by merging all necessary experts and departments under unique management and vision. Our team and ecosystem are formed by global leaders in their field of activities, with common goals: to incubate and accelerate new and exciting projects.
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