What Is Onchain Finance?
Welcome to June’s edition of Tokeny Insights. This month we take a look at the concept of Onchain Finance – the notion of applying compliant finance on a decentralized infrastructure.
Applying decentralized technology to capital markets is a highly complex matter in regards to compliance. Regulations that govern the world of financial securities differ from country to country and are becoming stricter and stricter every year. This is an area the financial industry, particularly banks, are facing significant challenges with. Globally, within banking, $270 billion is spent per year on compliance as obligations eat into profitability due to fragmented systems and poor reporting methods.
Blockchain technology will eventually solve these problems for financial institutions. However, if industry players are to benefit, the appropriate tools need to be built on top of this new infrastructure to ensure the rules and regulations are complied with. This is the concept of Onchain Finance, which in its simplest terms consists of two technological layers, permissioned tokens and onchain identities.
By utilizing Onchain Finance, industry actors can utilise the executable trust and shareable nature of decentralized technology. Validation of KYC & AML checks are only processed once, and proof of this (through cryptographic hash or signature) can be stored onchain and shared to approved parties. This process has the potential to save the industry seismic amounts, with BIS reporting 90% in administrative cost savings.