What's Holding Back Blockchain Finance? On the Possibility of Decentralized Autonomous Finance
Quarterly Review of Economics and Finance, 84: 420-429 (2022).
AIER Sound Money Project Working Paper No. 2019–06
32 Pages Posted: 20 May 2019 Last revised: 6 Jun 2022
Date Written: December 2, 2020
Despite the past decade’s rapid innovation in adapting blockchain technology to new uses, financial intermediation remains elusive except in basic and highly collateralized forms. We introduce the concept of the technical frontier to delimit the kinds of interactions that can feasibly be structured algorithmically among pseudonymous agents, as on a blockchain, and show that lending and financial intermediation – unlike monetary exchange – lie outside it, even in simple forms. The path forward for truly blockchain-native financial applications, therefore, must involve the integration of real-world identity information in order to disincentivize defection. We discuss several potential technologies for doing so, and conclude that such integration is possible without compromising pseudonymity, provided real-world identity is available in the breach.
Keywords: Banking, Blockchain, Financial Intermediation, Decentralized Organizations
JEL Classification: E42, E51, G21
Suggested Citation: Suggested Citation