An executive behind the $120 million Ethereum bond says banks must adapt to DeFi to survive

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DeFi uses blockchain technology, like cryptocurrencies.

  • Banks must adapt to decentralized finance to survive, a banker behind an Ethereum bond launch said.
  • Jean-Marc Stenger, head of SocGen’s blockchain unit, said banks risk losing out, like Kodak with the advent of digital imaging.
  • DeFi advocates argue it will revolutionize finance by removing middlemen and slashing fees.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Banks must adapt to the new world of decentralized finance in which contracts will be created through crypto technology or risk becoming irrelevant, according to the Société Générale banker who was a driving force behind a recent high-profile digital bond launch.

Jean-Marc Stenger, the head of SocGen’s blockchain technology unit Forge, told Insider that banks face a “Kodak moment” if they do not adapt to decentralized finance or DeFi, referring to the failure of the famous camera company to transition to the digital era.

DeFi is the use of blockchain technology – the same tech that underlies cryptocurrencies – to create financial products.

It replaces the usual middlemen like banks and brokerages and instead lets pieces of digital code called “smart contracts” automatically execute, or control, financial products, taking care of things like interest payments, for example.

The European Investment Bank generated excitement in the cryptocurrency community at the end of April when it used the Ethereum blockchain network to issue a €100 million ($121 million) two-year bond. Stenger’s Forge unit at SocGen was the platform manager and settlement agent.

Stenger told Insider that SocGen – Europe’s sixth-biggest bank – sees DeFi as a big opportunity for the sector that brings the ability to do things “quicker, cheaper, [and] with more security or transparency for the regulators.”

Although some are skeptical the technology can truly disrupt the giant industry, DeFi’s advocates argue that it will revolutionize finance. DeFi’s fans say it will eliminate the need for intermediaries and central overseers such as clearing houses, and the fees they charge. Instead, a decentralized computer network would keep the contracts and transactions secure.

Stenger acknowledged the DeFi model might pose a threat to some of the ways banks traditionally make money. But he said: “When there is a shift like this in an industry, the financial industry as we speak, obviously it also means that you have to adapt and to change.

“Decentralized finance is certainly a threat to these financial institutions, which will not adapt and embrace this change, that’s for sure. There might be kind of a ‘Kodak effect’, if I may use that term, for some banks or financial institutions which again will not adapt quickly.”

He said banks would still generate returns from providing customers the services they want, which he argues will increasingly be DeFi contracts. “In today’s world, clients are paying for services where they see value-added.”

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Major banks are increasingly keen on the Ethereum network – and it’s helping ether hit record highs

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Major banks from JPMorgan to UBS are increasingly keen on the Ethereum blockchain network, and it’s helping the system’s cryptocurrency, ether, soar to record highs.

Ether rose to an all-time high of $2,710 during Asian trading hours, before paring some gains to stand at around $2,672 on Wednesday.

The world’s second-most popular cryptocurrency had risen 15% over the week to Wednesday, according to data provider CoinGecko. It had gained around 260% in 2021 so far, compared to a 87% rise in bitcoin.

The interest from major banks and institutions around the world in the Ethereum network has boosted ether, which is the native cryptocurrency of the network and is used for transactions on it, analysts say.

On Tuesday, Bloomberg reported the European Investment Bank is planning to sell digital bonds using the network’s technology, offering $121 million of debt. The sale will be led by Goldman Sachs, Banco Santander, and Societe Generale, Bloomberg said.

It follows a rise in interest in the blockchain network, on which a range of applications can be built, including non-fungible tokens or NFTs and new technologies in the world of so-called decentralized finance.

JPMorgan, UBS and Mastercard were among the investors in Ethereum development company ConsenSys in a $65 million funding round earlier in April.

“Enterprise Ethereum is a key infrastructure on which we, and our partners, are building payment and non-payment applications to power the future of commerce,” Raj Dhamodharan, executive vice president of digital asset products at Mastercard, said.

ConsenSys has also worked with central banks in France, Australia and Thailand on central bank digital currency projects.

Analysts also say planned upgrades to the Ethereum network to make it more efficient, lower fees and start to destroy coins are helping the ether price.

Dallas Mavericks owner Mark Cuban told the Unchained podcast earlier in April that the move to a more efficient system will mean “the holdback of the impact on the environment will change immediately.”

He added: “That is going to give some people a reason to use Ethereum as a store of value over bitcoin, right there.”

Lex Sokolin, head economist at ConsenSys, said: “We think that Ethereum will become a global digital economy, settling the movement of all types of value across the world, including a meaningful portion of traditional financial services.”

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