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SCB 10X sees decentralized finance (DeFi) disrupt traditional banking. The firm, which is the venture capital arm of Thailand’s oldest bank Siam Commercial Bank, is preparing for this possibility by investing in the sector.
SCB 10X chief venture and investment officer Mukaya Tai Panich explained that DeFi already possesses everything traditional finance has, according to Coindesk. These include services and products such as asset management, credit/lending, trading, insurance, prime brokerage, and derivatives.
“When we looked at DeFi, we thought that it is possible that one day banks and other financial institutions will be completely disintermediated,” Panish said. Disintermediation, also known as cutting out the middleman, is the removal of intermediaries from a supply chain.
Indeed, proponents have touted DeFi for removing middlemen in financial transactions resulting in lower fees and faster transaction execution. This is done via the use of smart contracts, which are computer codes that set the rules and execute transactions once the conditions agreed by both parties are met.
Panich revealed that his firm is preparing for this scenario by actively investing in DeFi. SCB is also looking at integrating DeFi into traditional finance and is scouting for a suitable partner in the sector.
“We would like to partner with DeFi protocols to work together to solve the issues in traditional finance to reduce costs of operation, have real-time settlements, eliminate intermediaries, as well as have a high level of transparency,” she explained.
Panich believes that DeFi firms could work hand in hand with their traditional counterparts in the future. In this potential setup, traditional finance firms would handle customer-facing activities while DeFi ones would handle backend activities, an arrangement that could reduce settlement and transaction times and lower cost.
“For this to happen, I think traditional financial companies like us should actively explore, invest and adopt DeFi,” Panish said. “And at the same time, DeFi companies should look to work with traditional financial companies to leverage their strengths.”
SCB also expects increasing cross-chain interoperability among existing protocols, which could reduce inefficiencies. “Currently, different blockchains are solving specific problems within their own ecosystem,” Panich said. “There are a lot of inefficiencies as assets are being used mostly within the ecosystem and cannot be transferred to be used in another blockchain that easily.”
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