What's Holding Back Blockchain Finance? On the Possibility of Decentralized Autonomous Finance

Quarterly Review of Economics and Finance, Forthcoming

AIER Sound Money Project Working Paper No. 2019–06

NDSU Public Choice and Private Enterprise Research Paper, Forthcoming

32 Pages Posted: 20 May 2019 Last revised: 2 Dec 2020

See all articles by Cameron Harwick

Cameron Harwick

SUNY College at Brockport

James Caton

North Dakota State University - Department of Agribusiness and Applied Economics; American Institute for Economic Research; North Dakota State University - NDSU Center for the Study of Public Choice and Private Enterprise

Date Written: December 2, 2020

Abstract

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

Harwick, Cameron and Caton, James, What's Holding Back Blockchain Finance? On the Possibility of Decentralized Autonomous Finance (December 2, 2020). Quarterly Review of Economics and Finance, Forthcoming, AIER Sound Money Project Working Paper No. 2019–06, NDSU Public Choice and Private Enterprise Research Paper, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3373382 or http://dx.doi.org/10.2139/ssrn.3373382

Cameron Harwick

SUNY College at Brockport ( email )

Brockport, NY 14420
United States

HOME PAGE: http://cameronharwick.com

James Caton (Contact Author)

North Dakota State University - Department of Agribusiness and Applied Economics ( email )

Fargo, ND 58105
United States

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

North Dakota State University - NDSU Center for the Study of Public Choice and Private Enterprise

811 2nd Ave N.
Fargo, ND 58102
United States

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