Global trade and finance suffer from inefficiencies due to traditional infrastructures. However, According to Martha Reyes, research director at Bequant, cryptocurrencies can solve this problem.
In an interview with Cointelegraph, Reyes shared his thoughts on the state of global trade and finance and how cryptocurrencies make it more efficient. According to Reyes, despite the growth and magnitude of world trade, areas such as the payment of remittances still suffer from the number of intermediaries through which transactions must pass. This leads to long transaction times. Reyes notes that legacy systems for cross-border payments make global commerce a “prime candidate” for blockchain technology adoption.
“Digital ledger technology can make complex business transactions more efficient and secure. Smart contracts allow parties to specify the terms of an agreement and ensure that they are immutable and transparent.”
Reyes adds that traceability of ownership of documents and agreements stored in smart contracts makes security tighter. Apart from this, the researcher points out that the settlement of transactions within blockchains is much faster and reduces friction.
In addition to global trading, Reyes believes that tokenization also helps in the financing aspect. This can add benefits for small and medium-sized enterprises (SMEs) in the form of access to capital.
“Tokenization of trade finance assets can facilitate access to capital for SMEs looking to trade, as well as investors looking for yield, by matching supply and demand more efficiently.”
Reyes also cited the XDC Network as an example. “Smart contract transactions feature a digital currency, XDC, which represents the value of assets originating from off-chain banks that have yield-generating capabilities”Reyes says.
The director of research believes that this is a way of “breaking down barriers” and giving SMEs access to financing that is outside the scope of the traditional financing system. Reyes points out that this “can also increase competition among lenders.”
Adding to the topic, Bequant’s head of research also discussed the rise of hybrid protocols and what sets them apart.
“As more institutions become interested in DLT, and are often required to keep information in their transactions private, this can present a dilemma when using a public blockchain. Some institutions are even creating their own private centralized blockchains. This is where a hybrid model becomes useful.”
Reyes points out that within hybrid networks, the details of the transaction can be private and limit the data that is provided to the public network for the confirmation of the transaction.. According to Reyes, “The technology combines the speed of private blockchains with the security of public ones, taking advantage of the strengths of both and minimizing the disadvantages.”
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