Financial Technologies and DeFi

The chapter portrays possible traditional finance landings in the metaverse and emerging financial technology constructs of the 3D virtual space. It further provides insights on how financial institutions can benefit from the emerging wave of the 3D Internet beyond the hype. The financial component of the metaverse is one of the vital developments we will observe in the years to come as the applications and business cases that run on it emerge. In connection with this, the chapter presents a detailed analysis of the opportunities and challenges of metaverse banking by closely examining the 3D virtual economic system and its focal constructs. The potential for Defi protocols and fintech companies is immense to facilitate financial interactions in metaverse platforms. Yet, not to be left behind in our evolving digital world, there is a potential for legacy financial institutions to leverage metaverse in creating value through a thoughtful virtual presence. Yet, this will take time, and a detailed examination of the financial application areas is vital before any at-scale enterprise adoption where most metaverse platforms are sparsely populated.

The rapid growth of technology has influenced different industry sectors including the financial sector. The world of finance and banking is transformed significantly replacing conventional customer-facing services with application-based digital processes. New financial service providers recognized as Fintech companies have been raised as a result of technological advancements in the financial sector aiming to launch technology-based financial services and improve customer experience. Despite the promising role of fintech to provide safer, faster, and cheaper financial services for customers, there are still some challenges in the application of fintech. Besides, there are a great number of innovation opportunities to be employed in offering financial services by fintech companies considering constantly changing customers’ preferences and habits regarding the employment of new technologies in the financial sector. This chapter objectively clarifies the building blocks of fintech and how it has shifted the financial services (FS) sector, the challenges of employing fintech, and the future of fintech, catalyzing to provide a common understanding regarding fintech and futuristic perspectives through its development.

According to KPMG, there was over US$210 billion invested in global FinTech with over 5684 deals in 2021 (KPMG Pulse, 2022), which doubled 2020’s numbers of US$105 billion invested in 2861 deals (KPMG Pulse, 2021). This tells us two things. First, despite COVID-19 and its many variants troubling the globe, FinTech has made its way back, strong, and square. Second, with record deals and a record amount of money invested in FinTech, it is clearer than ever that FinTech is the future for both Financial and Technology businesses in the financial services industry. For financial and technology companies to survive and thrive, they have to respond swiftly and robustly to the inevitable trend of transformation to FinTech. By studying FinTech investment deals in the past two years, we have discovered that the development trend has gone through three main phases—from payments, to embedded finance, and to Public–Private Artificial Intelligence. Along with this trend, both business practices and related investments have shown a stronger tendency of matching and focusing with clearly defined positioning that is better aligned with resources. The areas of major focus include payments, insurtech, regtech, wealthtech, blockchain and cryptocurrency, and cybersecurity. As more and more FinTech businesses have realized the value in the aforementioned areas and are promoting opening and cooperating practices, risk control has also become more important a task, not just for FinTech businesses, but for regulators as well. This is another trend in which we are witnessing growing levels of cooperation and collaboration between the public and private sectors. In summary, all recent efforts we have seen in the FinTech sector are pointing in one direction: credibility, which happens to be the basis of finance. In this chapter, we will attempt to reveal the “secret equation” which governs this money invested, as well as the targets which have attracted such large sums. Analyzing this will help us better understand how the FinTech sector has evolved and what to expect for the future.

Tax-free and high-speed transactions and anonymity in cryptocurrency ownership spur investors’ interest in these forms of digital assets and currency systems. This chapter elucidates the in-depth review of the concept, features, adoption, and other significant topics associated with their development as a financial asset in 2009. Looking into its exponential growth, there are escalating speculations, “Whether it will be the mainstream payment medium in the future?” But on the other hand, despite tremendous price appreciation in recent years, cryptocurrencies are still called a bubble that can burst anytime due to three main reasons; regulatory oversight, the potential for illicit use due to anonymous transactions, and infrastructural breaches influenced by the growth of cyber criminality. Each affects the recognition of cryptocurrencies. Is it considered a credible investment alternative, mainstream payment too, and do these determinants influence its legitimate value? The chapter covers each of these aspects and explores what the future holds for cryptocurrencies? Crests or Troughs!

The evolution in currency and payments brought by financial technologies and the digital economic system are immense. In this chapter, we will have an in-depth look into stablecoins as one of the principal developments of decentralized networks and programmable money. The race toward securing the evolving cryptocurrency system, which suffers from wild price swings via a more stable monetary system, has led to the proliferation of stablecoins. Our industry assessment shows that there are no robust stablecoins that address the core issue of stability and secure digital asset valuations. Using a case study on the Terra(LUNA) mega crash, we showed that the industry is unstable, and a shock in one of the coins has a spillover effect on the whole market ranging from a coin substitution effect to crypto bank runs. Considerations in this area are efficiency in the collateralization ratio framework and a price stabilization policy that can cope with the crypto volatility.

This chapter covers the digital payments’ ins and outs, emphasizing digital wallets. Digital wallets are a relatively new phenomenon that has been keenly adopted by Gen Z, who have more comprehensive access to digital payment services than other generations. Some of the benefits of digital wallets include a reduction in crime, flexible means of payment, etc. Some of the costs include low financial and IT literacy and invasion of privacy. The chapter also illustrates the rationale for crypto wallets being the most popular form of digital wallets, which function through public and private keys and can be used conveniently to complete transactions. Furthermore, there are several categories of crypto wallets, namely chapter wallets, hardware wallets, desktop wallets, web wallets, and mobile wallets, which are either accessed in hot form (internet-based) or cold form (offline). The chapter also points out the privacy issues in a crypto wallet regarding losing the keys (addresses), which can largely be overcome through secret seed sharing or developing a multi-signature model. The chapter then suggests the critical implications of digital payments, which are rapidly moving towards a decentralized key management system (DKMS) in which the system can function through blockchain technology without any central authority commanding the execution of the transactions. In a nutshell, digital wallets are here to stay and expand in scope and size in years to come.

This research conducted a literature review on blockchain technology in small and medium entrepreneurs. It is a vital revolutionary technique that recuperates the food supply chain traceability process. More than 50 research revolving around food traceability were analyzed. This paper discussed the complexity of food traceability and food safety, the technical aspects of implementing blockchain, and the benefits and boundaries in applying food traceability using blockchain revolutionary technology. A straightforward implementation blockchain food traceability plan is jotted for medium and small food firms.

This chapter discusses the evolving distributed patent system built on blockchain technologies. By looking into the theories, practices, and empirical evidence, the chapter provides an in-depth analysis of the patent and property right schemes that create artificial excludability of resources with externalities using distributed ledger technologies. Here, we provided a holistic view of the blockchain-based patent system, emerging industry trends, and the relationship between the patent system and other markets under the technology life cycle. The relationship with other markets implies that a patent preserves initial incentives to make and commercialize inventions but could cause bumps slowing down the technology adoption and evolution. Further, we reassert the potential corporate blockchain-based patent systems hold for the financial stability of cryptocurrencies. These forms of currencies absorb the shocks in related markets; hence, corporate blockchain patents can help change the market dynamics and stabilize the market. Besides, we analyzed the allocative efficiency with self-enforcing protocols by changing the rules of the game through smart contracts and incentive designs that lead to an optimal outcome in the distributed patent system. This will lead to allocative efficiency as opposed to the conventional centralized Pareto optimal outcomes of the centralized patent system, which leads to sub-optimal outcomes. Based on our analyses, we argue that blockchain and its underlying features hold significant potential for traceability, timely retrieval, immutable records of the title of ownership for the lifecycle of property rights and patents, together with the smart contracts that help redefine the rules of the game in the patenting system.

Financial technologies and financial product advancements are long rooted in the early twentieth century. Advances in this sector, adding to the financial infrastructure of the economies, have defined the performance of countries and reflected on the financial well-being of the economic units that interact in such markets with immense opportunities for financial inclusion. Yet, with the hasty technological advancements in the field, we observe an increase in the complexity and forms of digital financial risks and regulatory loopholes with poorly defined legal frameworks that struggle to meet the dynamic tech environment. By augmenting the fraud triangle approach for digital financial risks, we identified the motives, opportunities, and rationale of financial tampering, including fraud, money laundering, and financial crimes. Based on this and the potential Fintech holds for emerging economies, the chapter provides a commentary on the legal catch-up effect and further considerations for a healthy fintech environment.