Rasko Peric:
Mr. Camerinelli, please tell us briefly about your activities at the Aite Group. What are you currently working on?

 

Enrico Camerinelli:
I am a Senior Analyst with the Aite Group – a global research and advisory company. My research is mostly based on bridging the gap between the physical and the financial supply chain. Since I have a corporate background, my research is always trying to understand what are the needs from the corporate side, typically the corporate treasurers and the operations managers in large and small companies – and translating that in recommendations and research findings, addressed to financial institutions and solution providers.

My current research is focused on global transaction banking, mostly for business to business operations. So, bank to business, business to business, large bank to small business, large bank to large business and so on. Typical areas of my research are around treasury systems, cash management, liquidity management, trade and supply chain finance, enterprise blockchains, and recently decentralized finance.

 

Rasko Peric:
Decentralized finance (DeFi) is the term used to describe financial services that are processed via a decentralized platform – for example a blockchain. That is the general definition. What exactly is it?

 

Enrico Camerinelli:
The definition given of DeFi is – to say it well summarized – to further articulate let´s say that the DLT (Distributed ledger technology) is shaping the financial supply chain in unpresented ways. DeFi represents a tangible evidence of this. In essence, DeFi enables parties to trade traditional financial products like lending for instance or borrowing in a peer to peer fashion – replacing the intermediary, so the financial institution, with DLT-based smart contracts.

 

Rasko Peric:
The application of DeFi is connected with the use of new technologies. In your opinion, what risks and opportunities are associated with this?

 

Enrico Camerinelli:
Indeed, DeFi is particularly interesting, because it leverages the totally decentralized nature of blockchain based applications and leveraging smart contracts, as the means to regulate the dynamics of the trading operations. Between risk and opportunities today in a let´s say more traditional financial world the risks are much higher than the opportunities. Not so much from the technical perspective, but mostly because the proposed solutions are very innovative and therefore any innovation requires caution and moving very carefully. But also the fact, that as always the purist application of DeFi clashes against the needs and sometimes the necessity or having more of a centralized and regulative control of how activities are being operated.

The opportunities are the fact, that really it is possible – especially now we are already seeing with current applications and use-cases that individuals can better manage and handle their personal finances. So, even if today DeFi is given that operates with cryptocurrencies, it balances and offsets the risk of high volatility of current cryptocurrencies by introducing the concept of stable coins. So, cryptocurrencies there are pegged and stabilized against other currencies. But nevertheless, the fact that all the operations and transactions rely on algorithms with no central control – this beyond alongside being perceived risk as I said before – it is also an opportunity, because it really puts in the hands of the user the possibility of controlling and having total transparency of how the operations of his or her personal finances are being handled.

It is interesting also to consider or to expect, that having now the introduction in a parallel manner of central bank digital currencies – so, more regulated and centralized cryptocurrencies, somehow currencies that are managed on DLT like protocols. I´m expecting that soon stable coins will be replaced by central bank digital currencies and therefore the perceived risks will be reduced and therefore the interest on the institutional and corporate side, business side will start prevailing while the retail side – speculation and deposit capture and deposit management – still will remain. That again, being able to immediately run DeFi products using central bank digital currencies instead of cryptocurrencies as it happens today.

 

Rasko Peric:
Please explain to us to what extent factoring and DeFi are (can) related to one another?

 

Enrico Camerinelli:
It is still difficult to anticipate or think how DeFi can impact factoring. So, what I´m expressing is more based on my personal understanding and feelings rather than what I´m seeing what´s happening in the market. Definitely, the fact that DeFi allows to decentralize and trade crypto assets will allow – in my opinion – also to impact significantly the factoring business, because especially with the introduction of central bank digital currencies an invoice will become dematerialized, and we already see this happening, but also it will turn into a digital token that can be uniquely represented on a distributed ledger and therefore the repayments or the logics of the anticipating payments against an invoice will be dramatically improved and the speed will be much more significant than today.

So, while today you have to collect, you have to turn an invoice into receivable and then the receivable becomes the collateral for repayments and then the factor has to chase the debtor to get repaid. All these processes might remain the same, but the fact that everything is run on digital rails and smart contracts will regulate and basically set the pace of the timing of the operations, I expect that what will be the equivalent of invoices on digital tokens will be also tradable assets. And so, and approved invoice which actually in the time of DeFi we must also think that an approved invoice perhaps that´s a misnomer, because it will be more moving title of ownership on distributed ledger rails. So, a purchase order will be basically transferring the title of ownership of producing something to the supplier.

And once the supplier has finished and delivered the goods, it will transfer the title of ownership of those goods to the clients provider that the smart contracts regulate the issuing of the payment which again will be just a transfer of ownership of digital currencies from the debtors wallet into the suppliers wallet. And all this will be mostly automated through smart contracts, but I do expect that there will be a form of supervision, not to execute or to regulate the execution of transactions, but basically to establish necessary rulings to insure that smart contracts are enforceable and become accepted by all participating entities.

 

Rasko Peric:
The DeFi Pulse platform regularly publishes figures on the monetary value tied up in DeFi. A year ago it was around 540 million US dollars; today it is over 8.5 billion. A sign that DeFi is definitely on the rise?

 

Enrico Camerinelli:
Yes, the numbers speak for themselves and there is an incredible rise in terms of monetary value tied in around DeFi. Many might consider that DeFi is a sort of living the same dynamics of ICOs (initial coin offerings), that unfortunately did not keep what they have promised. So, there has been like a big bubble, where people were just launching project whitepapers and collecting funding in term of cryptocurrencies just to promise huge returns to the investors. We know, that only very few of these ICOs have succeeded and the rest have miserably failed.

DeFi in my opinion takes the experience of ICOs and is avoiding the same mistake. The point is, that it depends on how much DeFi will move from the speculative nature that it has today, because it is undoubtably that even with coins been stabilized – reducing the volatility of cryptocurrencies that are used in DeFi exchanges – still the vast majority of the money or the cryptocurrency circulating is because of the high returns that are possible. So, even with small investments you can expect dou-ble digit high returns and so this of course increases especially in a period like this one, so we have to consider also that we are facing a big, big economic disruption with COVID. And therefore per-sonal savings that have almost no value if kept in bank accounts can instead generate value if put in these DeFi deposits. The point is, that this remains just as an alternative to bank deposits – than it is not to be a bubble, because it´s much safer than volatility in ICOs, but definitely it will get to a plateau.

I´m very much confident with the role that central bank digital currencies can play, because they are much more accepted in the business world and therefore the benefits of DeFi that really allows individuals. An individual can be the individual person, the individual consumer, the individual householder, or a business person. So, I do expect that the role that the central bank digital currencies will play, is to reduce the inherent risk perceived in DeFi and will take advantage of the possibility of invisibility and cutting many intermediaries, streamlining operations while at the same time ensuring that the rules are applied, that contracts can be enforceable. So, I expect now that technology is maturing that the big push will be on ensuring that regulators and contractual relationships will be managed and governance, policies and best-practice will be shared among all parties.

 

Rasko Peric:
Mr. Camerinelli, thank you very much!