Many of us might remember the past six months as a time of nail-biting drama and chaos in the world of finance. In late 2022, the spectacular collapse of cryptocurrency exchange FTX served as something of a precursor to some of the tumultuous developments that defined the start of 2023: In March, Silicon Valley Bank’s failure sent shockwaves through the global tech sector and beyond. Just days later, Credit Suisse’s downfall roiled markets before UBS acquired it, saving it from the brink.
But while all these events have underscored the fact that the world of money is not for the faint of heart, they’ve also shed light on a more important and less obvious truth: Traditional models of finance may well be functional, but they’re not optimal. In many cases, a makeover is overdue.
There are, of course, many ways in which that can be done, including changes to organizational culture and operational strategy, or better regulation. But at an event held at Columbia Business School’s David Geffen Hall in mid-March, a panel of experts suggested that integrating blockchain technology into legacy structures might be one of the most efficient and exciting ways to future-proof finance.
As part of the discussion, hosted by the School’s Digital Future Initiative and moderated by Todd H. Baker, a senior fellow at the Richard Paul Richman Center for Business, Law, and Public Policy at Columbia University, experts from industry and academia explored blockchain’s potential in traditional finance.
“All is certainly not roses in crypto,” acknowledged panelist Ciamac C. Moallemi, the William von Mueffling Professor of Business at CBS, at the outset of the conversation. But he agreed with fellow speakers that blockchain’s potential —particularly in the traditional finance space—is varied and underappreciated.
Here are three takeaways from the event:
1. Settlements can be simpler
Considering the clout of the global finance sector, it might be surprising that some of the most integral parts of the services it supports are, in some ways, still so primitive, argued Moallemi.
“Think of settlements,” he said. “The time it takes to settle a trade in the traditional finance world is generally still about two days. This is primitive compared to the blockchain world, where settlement can essentially happen in real time and can be visible to all.”
And these advantages are not just for institutions, he explained. Every consumer can benefit from the composability that blockchain allows, enabling a frictionless experience for individuals who want to manage their assets and investments without worrying about different accounts, with different interfaces and passwords. For example, if a saver wants to obtain a margin loan from a brokerage but not from the brokerage that manages their assets, blockchain technology could be the answer.
Morgan Krupetsky, director of business development for institutions and capital markets at Ava Labs, also highlighted this advantage. By implementing blockchain technology, “trade confirmations and reconciliation can effectively occur in real time,” she said, which provides the additional benefit of reducing counterparty and other types of risk.
From left: Aaron Brown, Tom Brown, Morgan Krupetsky, Professor Ciamac C. Moallemi, and Todd H. Baker.