Will wealth managers turn to decentralised finance?

There is a growing hype around digital assets. Blockchain, cryptocurrencies and NFTs are all growing in the public interest – will wealth managers jump on the trend? 

A recent post by Kidbrooke has considered this trend, exploring digital assets in deeper detail and examining the likelihood and benefits or negatives of taking up decentralised finance in the wealth management arena.

The company noted there has been a certain degree of scepticism in the wealth management industry around decentralised finance, with a consensus that all things including blockchain technology are too risky to consider.

Despite this stance, the industry is changing too fast for this opinion to remain sacrosanct. The accelerated digitalisation of the economy, the growing ecosystem of players in digital custody, exchange, and the continuous development of distributed ledger technology all appear to be here to stay.

So what is keeping decentralised finance technology from the attention of the traditional wealth management industry? According to Kidbrooke, the first concern is security.

The firm said, “Though blockchain technology is public and creates permanent, open-access records, it is not immune to cyberattacks and fraud. For example, a cyber-attack may result in a blockchain provider being compromised or the keys to crypto wallets being stolen. The breached blockchain-based platform Poly Network lost more than $600 million in cryptocurrencies in August 2021, marking the biggest theft in history of the sector.

“Therefore, cybersecurity remains a solid issue that blockchain platforms need to address in the future. Moreover, in part due to the anonymity, decentralized finance remains a popular ground for fraudulent activity. Although the FCA has started taking steps to protect the consumers from the fraudulent activity in the decentralized finance sector, it is likely that the threat remains tangible for years to come.”

The second key concern for wealth managers is uncertainty. The firm continued, “The underlying value of digital assets, and cryptocurrencies specifically, is difficult to gauge. To make matters worse, there aren’t any industry benchmarks or regulatory authorities that would survey the market or create independent standards applicable for a particular product. In most cases, wealth managers refuse to consider cryptocurrencies because of the difficulty in estimating the magnitude of this uncertainty.”

Read the full post here.

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