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Web3 and its impact on the finance sector

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Web3 and its impact on the finance sector

While web1 was about information and web2 was about communication, web3 is instead about exchanging value and helping complete the internet.

Blockchain technology will have a significant impact on traditional finance institutions – including everyone from banks to government institutions. This is the view of Lars-Jacob Boe (Senior Partner at Bain Norway) who was speaking at the recent London Blockchain Conference.

He began the presentation by noting that bank executives around the world need to ask themselves the same four questions:

  • What is Web3 and is it relevant?
  • How will Web3 impact my business?
  • Should I be worried?
  • What should I do?

Boe explains that while web1 was about information and web2 was about communication, web3 is instead about exchanging value and helping complete the Internet. This is decentralised and peer-to-peer without intermediation. One of the biggest focuses for banks in this space is digital assets, which includes everything from crypto assets to central bank digital currencies and tokens, he said.

Web3 and blockchain are still in nappies

Despite its rapid growth and adoption, Boe noted that the move to web3 and blockchain penetration is still low in some industries – particularly advanced manufacturing, energy, healthcare and the public sector. At the other end of the spectrum, financial services and technology companies are leading the adoption of blockchain as they look for disruption opportunities.

He added that banking executives now need to familiarise themselves with several new concepts at a rapid pace, including:

  • Blockchains – Accessible interconnected ‘online’ infrastructure that supports a wide range of use cases.
  • DeFi – These are financial instruments that don’t rely on intermediaries such as brokerages, exchanges, or banks by using smart contracts on a blockchain.
  • Digital wallets – Online ‘passport’ that combines aspects of identity, access, and participation for the user.
  • dApps – Applications built on open networks enabling financial, social, and other activities.
  • Digital currencies – This means to transfer value natively within the digital ecosystem.
  • Digital tokens – Digital, universal representation of any asset such as property gold and art.
  • DAOs – New organising paradigm to autonomously operate groups, projects, or even companies.

Blockchain and web3 inflection on the horizon

Despite being relatively nascent, and more education being required in the banking sector, it is clear that an inflection point is coming for blockchain and other web3 technologies, said Boe.

He noted that the average digital market assets cap in 2021 was around $1.8 trillion, but that strong market growth is expected in the mid-term and that these market cap figures are expected to grow anywhere between x4 and x8.

Looking even longer term, Boe noted that governments are set to increasingly adopt the technology with multiple Central Bank Digital Currencies (CBDCs) and stable coin use cases coming into play, while digital tokens and traditional securities continue to co-exist.

This mass adoption will be driven by several factors including a maturing regulatory environment, the rapid evolution of technology, adoption from institutional and private investors, and capital inflow.

Boe added that some investors are even more bullish on the sector. ‘HSBC and Northern Trust estimate that between 5-10% of assets will be tokenised by 2030. That’s just within the next seven years – which is incredibly fast – and could be between $15 trillion – $30 trillion in digital assets which are owned, traded and exchanged.’

Ryan Brothwell

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