# Three blockchain application scenarios for the financial services industry Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-07-13 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: The Future of Blockchain Technology in Wealth Management Meta Description: Learn how blockchain technology is revolutionising the wealth management industry, from investing in cryptocurrencies to tokenizing non-bankable assets. URL: https://financedigest.com/three-blockchain-application-scenarios-for-the-financial-services-industryhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/dsc6180-2520-1736838185833-compressed.jpg) _By **Dr Nils Bulling,** Head of Digital Strategy and Innovation, Avaloq_ Bitcoin and other cryptocurrencies such as Ethereum continue to make headlines. In addition, the rapid rise of non-fungible tokens, or NFTs, is also becoming mainstream news and, in the process, an exciting new asset class. But, in the debate about Bitcoin and other digital assets, the underlying use [case for blockchain](https://www.financedigest.com/blockchain-a-case-for-the-general-ledger.html "BLOCKCHAIN: A CASE FOR THE GENERAL LEDGER") technology should not be overlooked. Blockchain is one of the most compelling contemporary [technological developments in the world](https://www.financedigest.com/shakedown-on-horizon-for-financial-technology-world.html "Shakedown on horizon for financial technology world"), and this momentum will continue to accelerate. It has an increasing number of real-world applications in a range of industries, including the [financial sector](https://www.financedigest.com/boom-or-bust-how-the-financial-services-sector-is-coping.html " Boom or Bust: how the financial services sector is coping"). The global [wealth management](https://www.financedigest.com/wealth-management-consultant.html "Wealth management consultant") industry, in particular, is well placed to benefit from blockchain technology, with three application scenarios particularly promising right now: investing in cryptocurrencies and digital assets; tokenizing non-bankable assets (nBAs); and decentralized finance (DeFi). 1. [**Investing in digital assets and cryptocurrencies**](https://www.financedigest.com/7-reasons-why-you-should-invest-in-cryptocurrency.html "7 Reasons why you should invest in Cryptocurrency") **Challenge:** It [remains important for investors](https://www.financedigest.com/6-months-to-go-until-brexit-and-investor-sentiment-remains-bold.html "6 months to go until Brexit and investor sentiment remains bold") to have a diversified investment portfolio, and this will increasingly mean exposure to some form of digital assets. The digitalization of assets offers the public the chance to invest in and accumulate assets in new ways. Previously, such investments have been inaccessible to many investors, or at least very difficult to access. Today, there is a strong business case in making [investors aware of the return opportunities](https://www.financedigest.com/the-vc-opportunity-breaking-down-barriers-for-private-investors.html "The VC opportunity: breaking down barriers for private investors ") – and the risks – of digital assets. **Solution:** [Technological solutions now exist that allow financial](https://www.financedigest.com/how-financial-services-companies-can-successfully-utilise-low-code-and-no-code-technologies.html "How financial services companies can successfully utilise low-code and no-code technologies") institutions to tap into the field of digital assets with surprisingly little effort. Banks and [wealth managers](https://www.financedigest.com/analysis-credit-suisse-collapse-threatens-switzerlands-wealth-management-crown.html "Analysis-Credit Suisse collapse threatens Switzerland’s wealth management crown") can make all investment options available to clients from a single source or platform – from traditional cash investments and equities, to cryptocurrencies and other digital investments. [Shares in unregulated funds](https://www.financedigest.com/permitted-share-of-chinas-yuan-in-russian-wealth-fund-doubled-to-60-finance-minister.html "Permitted share of China’s yuan in Russian wealth fund doubled to 60% -Finance Minister") can be issued in the form of digital assets and managed securely on these platforms, for instance. **Outlook:** Digital assets allow [financial institutions to offer their clients new investment](https://www.financedigest.com/how-green-are-your-investments-why-esg-data-integration-is-key-for-financial-services-firms.html "“How green are your investments?” – Why ESG data integration is key for financial services firms") opportunities. Different types of digital assets also offer [financial institutions](https://www.financedigest.com/the-future-of-financial-institutions-in-2023.html "The Future of Financial Institutions in 2023") the chance to tap into new client segments. We believe that the financial [services](https://www.financedigest.com/how-crowdsourcing-can-help-drive-the-benefits-of-advanced-analytics-in-financial-services.html "HOW CROWDSOURCING CAN HELP DRIVE THE BENEFITS OF ADVANCED ANALYTICS IN FINANCIAL SERVICES") industry is entering a period of explosive growth in financial products based on digital assets. [Banks and wealth managers will need to offer their clients the seamless integration of these assets](https://www.financedigest.com/asset-managers-on-alert-after-whatsapp-crackdown-on-banks.html "Asset managers on alert after ‘WhatsApp’ crackdown on banks"). 2. **Tokenizing non-bankable assets** **Challenge:** Around a third of all global assets are currently illiquid assets, also referred to as non-bankable assets (nBAs). These include artworks, exclusive real estate, and classic car collections. Handling nBAs is often more challenging for banks than handling traditional, liquid assets, such as [shares and bonds](https://www.financedigest.com/shares-and-bonds-nervy-as-rate-hike-week-looms.html "Shares and bonds nervy as rate-hike week looms"). This is partly due to the fact that [alternative investments](https://www.financedigest.com/investing-in-the-future-with-alternative-web-data.html "Investing in the future with alternative web data") often entail high entry barriers for investors and partly because pricing, computing risks and forecasting returns are more complex for them. **Solution:** Through blockchain technology, nBAs can be offered in the form of tokenized assets. This reduces entry barriers such as minimum investments, and liquid markets are emerging for these assets. The technology allows [financial institutions](https://www.financedigest.com/what-the-future-holds-for-financial-institutions-in-2023.html "What the Future Holds For Financial Institutions in 2023") to establish nBAs for a broader investor base. **Outlook:** With tokenized assets, [financial institutions](https://www.financedigest.com/a-cloud-migration-guide-for-financial-institutions.html "A Cloud Migration Guide for Financial Institutions") can drive forward the democratization of assets and make alternative assets accessible to a broader investor base. Tokenization enables clients to trade fractions of a classic car collection, a luxury villa or a Picasso painting, for instance. This should push up demand for nBAs as well as for new advisory services. Experts anticipate a market volume of around USD 24 trillion by 2027. Long-term potential will certainly be significantly higher, if the total volume of all illiquid [assets is taken into account](https://www.financedigest.com/making-your-accountant-an-invaluable-asset-to-your-business.html "MAKING YOUR ACCOUNTANT AN INVALUABLE ASSET TO YOUR BUSINESS"). 3. **Decentralized finance (DeFi)** **Challenge:** Decentralized finance (DeFi) involves a decentralized model that runs counter to centrally organized [financial services](https://www.financedigest.com/as-hackers-declare-cyberwarfare-financial-services-cannot-afford-to-be-complacent.html "As hackers declare cyberwarfare, financial services cannot afford to be complacent"). The traditional centralized approach brings with it the existing advantages but also the disadvantages: a quasi-monopoly situation can make other parties dependent on certain entities and can expose them to red tape and inefficiencies. **Solution:** Blockchain technology allows [financial services](https://www.financedigest.com/what-can-we-learn-from-financial-services-security.html "What can we Learn from Financial Services Security?") to be decentralized, thanks to smart contracts, which store transaction data in the distributed ledger as well as rules for transactions. Investors interact with one another directly as the smart contract replaces the intermediary. Besides blockchain, other modern technologies, such as the internet of things (IoT), [artificial intelligence and big data](https://www.financedigest.com/theres-nothing-artificial-about-the-role-of-ai-and-data-in-the-finance-industry.html "There’s nothing artificial about the role of AI and data in the finance industry "), also play a key role in the new DeFi concepts. Decentralized applications (Dapps) allow access to various DeFi services. These range from peer-to-peer payments to loans and decentralized exchanges. They can be [accessed through the blockchain directly and without the usual need](https://www.financedigest.com/what-needs-to-happen-to-improve-the-landscape-for-smes-trying-to-access-finance-options-in-the-uk.html "What needs to happen to improve the landscape for SMEs trying to access finance options in the UK") for a financial intermediary. **Outlook:** DeFi opens up great opportunities for the world of business – especially as it can include people who previously had no access to [banking services](https://www.financedigest.com/73-of-employees-in-the-banking-and-financial-services-industries-are-looking-for-better-physical-and-mental-wellbeing-support-in-the-workplace.html "73% of employees in the banking and financial services industries are looking for better physical and mental wellbeing support in the workplace"). [Financial institutions can open up entirely new business models](https://www.financedigest.com/10-ways-to-make-your-financial-model-easier-to-understand.html "10 Ways to Make Your Financial Model Easier to Understand") such as secure storage of private keys, innovative insurance solutions or automated verification of identities. The dollar value in DeFi applications has increased fifty-fold within a year; as such, it seems advisable to address the topic and identify business opportunities. **Conclusion:** [Blockchain is the future](https://www.financedigest.com/why-blockchain-could-represent-the-future-of-cross-border-payments.html "Why blockchain could represent the future of cross-border payments") We believe it is likely that blockchain technology and its applications will help to shape the [future of banking](https://www.financedigest.com/bank-of-the-future.html "Bank of the future"). Also new stable coins – and perhaps even a [digital euro](https://www.financedigest.com/digital-euro-will-be-free-but-limited-in-scope-ecb-says.html "Digital euro will be free but limited in scope, ECB says") – could end up driving this development forward. Digital assets and DeFi applications will significantly [change the face](https://www.financedigest.com/the-changing-face-of-peer-to-peer.html "THE CHANGING FACE OF PEER-TO-PEER") of the financial services industry. At the same time, they will open up entirely new revenue opportunities for institutions. [Banks and wealth managers should examine the opportunities offered by cryptocurrencies and digital assets now so that they will be able to cater to growing demand as client interest increases](https://www.financedigest.com/banking-and-fintech-convergence-will-increase-reliance-on-it.html "Banking and Fintech Convergence will Increase Reliance on IT"). Any institution that is not prepared for this could easily suffer competitive disadvantages among new as well as existing clients. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---