Web 3.0 Tokenization and Decentralized Finance (DeFi)

Abstract

A ‘perfect storm’ of Web 3.0 peer-to-peer infrastructure, decentralised finance (DeFi), cryptocurrencies, asset tokenization and smart contracts is set to radically transform the financial services industry.

The challenge is to understand this emerging tokenization and disintermediation of finance:

Web 3.0 - the third generation of the World Wide Web based on the distributed ledger technology (DLT). Web 3.0 features open, decentralized and interconnected protocols to provide peer-to-peer automated services.
Decentralized Finance (DeFi) – a new class of Web 3.0 financial services built with smart contracts on top of distributed ledger networks. DeFi covers both the tokenisation of financial products (e.g. securities), and in future the trading of any asset (e.g. virtual luxury goods).

Tokenization – the process of issuing tokens that represent an asset where the rules and behaviours governing the asset are encoded in smart contracts. An asset can be fungible or non-fungible. Fungible assets are indistinguishable from their own kind and are mutually interchangeable. Non-fungible assets are not interchangeable and require a unique identification code to distinguish them from other related assets.

Keywords: DeFi, Tokenization, Web 3.0, Blockchain, Decentralised Finance, Cryptocurrency, NFT, Financial Services

JEL Classification: G10, G20, G30, 030, C80, F00