The finance industry has undergone significant transformations since it was established in 1851 by Western Union. From the introduction of the first money telegraph service to the rise of the Internet and mobile banking, financial transactions, especially cross-border payments, have been revolutionized. With all the challenges that exist in the current traditional finance (TradFi) approaches, is there a place for Web 3.0 to offer its unique solution?

An overview of cross-border transactions

Cross-border transactions have become an essential aspect of international trade and commerce with B2B transactions projected to reach a Total Addressable Market (TAM) of $56.1 trillion by 2030. However, the slow adoption of innovative solutions and the adherence to TradFi approaches by the industry have resulted in expensive, slow, and inefficient cross-border transactions. As illustrated in a study among MNCs, cross-border transaction costs amounted to $120 billion and took two to three days for a $23.5 trillion transaction.

The difficulties encountered can be attributed to the shortcomings of traditional financial approaches. The lack of interoperability among correspondent banking systems in different countries has necessitated the involvement of multiple intermediaries with varying operating procedures and time zones. Consequently, the lack of transparency and consistency among correspondent banks has led to delays and increased costs. Additionally, the absence of a uniform legal and regulatory framework across nations further complicates compliance with regulatory standards, prolonging the processing time required for cross-border transactions. Given these challenges, it is not surprising that the G20 has prioritized enhancing cross-border payments, with a focus on improving transaction speed, cost, access, and transparency.

This is precisely where Web 3.0 emerges as a transformative force.

Preventing SVB-like scenarios through Web 3.0 adoption in TradFi

The bank run of the Silicon Valley Bank reflects the failures of TradFi approaches. If SVB had tokenized both assets and liabilities, it would have been able to provide customers with immediate visibility into its reserves and capital – increased transparency and fast. This would have assured customers that the bank was not insolvent and had not engaged in excessive leveraging. In turn, this transparency could have prevented panic from spreading through social media channels.

Hence, one potential strategy for addressing the challenges encountered in cross-border transactions and traditional financial institutions lies in the integration of technological solutions offered by Web 3.0, specifically tokenization.

Tokenization revolutionalizes DeFi by leveraging smart contracts and blockchain technology from Web 3.0 to substitute “individuals” or “institutions” with “codes” in the transaction process. This approach facilitates trustless transactions, where reliance on a single party is eliminated. It enables permissionless execution and verification of transactions by any participant while ensuring the immutability of records once finalized. Consequently, tokenization prevents any entity from altering the state of the transaction. As such, the IMF report found that the nuanced approach of DeFi has now led to outstanding cost savings, increased security, and transparency when compared to outdated TradFi approaches.

Tokenization drives inclusion and access to investment opportunities

The St. Regis Aspen Resort case offers a real-world example of how tokenization drives inclusion and access to investment opportunities. By offering digital tokens representing equity (tokenization) of the property to accredited investors, the unconventional approach led to the resort’s price increase by 32 percent with the growth of investors. Tokenization increases investor access, increases liquidity, and lowers capital requirements, making investment more accessible to the public than traditional approaches.

Furthermore, the vast potential lies in the ability to extend the accomplishments observed within the real estate industry to encompass various tangible assets, such as infrastructure and financial instruments, as well as intangible assets like as intellectual property. This opportunity presents itself boundlessly, holding the promise of immense prospects.

Asia is well-positioned to take the lead

With tokenization unlocking the possibility of bridging the vast accumulation of assets off-chain onto the on-chain DeFi landscape, this presents a promising opportunity for the financial sector to harness the finest aspects of both realms, thereby paving the path toward a more streamlined and interconnected financial ecosystem. Due to these benefits, the integration of tokenization into the future of the finance industry is hence inevitable. Hence despite the bear market the Web 3.0 industry is currently witnessing, the real-world tokenization market is predicted to reach a market potential of USD 16 trillion by 2030. Nonetheless, this is only possible if both government bodies and private entities continue to work alongside to support the growth of the industry, with the common goal of implementing new regulations and technologies to better protect investors.

For example, in Asia, we are seeing countries like Singapore coming up with updated regulatory frameworks to cater to the unique characteristics of Web 3.0 and RWA tokenization. That is, the Monetary Authority of Singapore is currently working with 17 financial institutions to test promising asset tokenization use cases to investigate the benefits and challenges of scaling the tokenized market in Singapore.

In addition to addressing technical hurdles, like achieving seamless integration between decentralized on-chain (Web 3.0) and centralized off-chain environments, private entities must prioritize educational initiatives and conferences, such as ONCHAIN 2024. These events play a crucial role in fostering mainstream adoption and building trust in decentralized platforms. By emphasizing the exchange of knowledge and innovations at the confluence of TradFi and Web 3.0, conferences propel the growth of tokenization and Web 3.0 technologies.

Web 3.0 is more than a hype

While there is certainly a lot of hype surrounding Web 3.0 in the fintech industry, it would be unwise to dismiss its potential as merely a passing trend. With its promise of enhanced security, increased efficiency, and expanded opportunities for financial services, Web 3.0 has the potential to revolutionize the way we think about and engage with fintech. As the technology continues to develop and evolve, it will be crucial for fintech companies to stay informed and adapt to capitalize on this trillion-dollar opportunity fully. Only time will tell how Web 3.0 will shape the future of fintech, but it is certainly worth paying attention to and investing in for those looking to stay ahead in the industry.

Qin En Looi is a Partner at Saison Capital where he actively leads pre-seed and seed investments in startups across fintech, B2B commerce and web3. He is an advisor to Southeast Asia-based web3 startups including Avium, Avarik Saga, Helix, and Mythic Protocol, and also co-founded a web3 growth blog.

Qin En was previously the co-founder and COO at Glints, the leading talent ecosystem in Southeast Asia (Series D). During his tenure, he was recognised by Forbes 30 Under 30 and Entrepreneurs 27 Under 27 for being one of the youngest founders to have raised venture capital in Southeast Asia.

Qin En is an accomplished professional with a Bachelor of Science degree in Management Science & Engineering from Stanford University. He ranked in the top 15% of the overall student population and served as a Teaching Assistant for over 180 undergraduates.

In his personal time, Qin En is also the creator and host of Parents in Tech, a podcast for parents in Southeast Asia that has topped charts in Singapore, Indonesia, and The Philippines in the Parenting and Kids & Family Categories.

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