DLT and FinTech professor: DeFi is here to stay

Bestselling author Prof. Dr. Fabian Schär talks about blockchain and the future of finance. The DLT and FinTech professor also shares his views on public and private blockchains and Facebook’s Libra.

DLT and FinTech presentation

Prof. Dr. Fabian Schär is the Credit Suisse Asset Management (Switzerland) Professor for Distributed Ledger Technology and Fintech at the Faculty of Business and Economics, University of Basel. In addition to DLT and FinTech teaching, he is the Managing Director of the Center for Innovative Finance at the University of Basel.

His research focus is on the potential and applications of blockchain. He has co-authored several publications, including the bestselling book “Bitcoin, Blockchain und Kryptoassets,” has been involved in numerous blockchain projects and is a regular speaker at conferences. Fabian also holds various board positions and has several years of professional experience in the financial industry. Blocks99 had the opportunity to speak with Fabian at the Singularity Exponential Finance Summit in Zurich, Switzerland, in November 2019.

Blocks99

Please begin by talking about your blockchain activities at the University of Basel.

Fabian

We have been researching the topic since 2014. The research ranges from theoretical analyses to applied projects such as our diploma project, where we use the Ethereum blockchain to secure university certificates. The project has been adopted by many large institutions worldwide. On the more theoretical side I have published papers on mining efficiency, the tokenization of assets, central bank digital currency and forks.

Besides research there is a large variety of teaching activities. Currently, I teach six blockchain classes at the University of Basel. The focus is on interdisciplinarity and a deep understanding of the protocols, including the cryptographic tools. The most unique class is a more applied one. In the “Blockchain Challenge” students get a chance to work with external partners and use their skills to develop real-world blockchain applications in what can essentially be described as an extended blockchain hackathon.

Additionally, we host a large variety of Blockchain events, such as the “Blockchain Symposium”, the “Banking Meets DLT Conference” and the “Blockchain Gala.”

It’s a really diverse mixture of research, teaching and events, but also project work and consulting in the blockchain space.

Blocks99

So you have a lot of technical students?

Fabian

I am a professor at the Faculty of Business and Economics. However, my classes are usually attended by students from all faculties. I’d say usually about 40% of my students are from the economics department, and then another 40% are from computer science, maths and physics. And then we have students from all over the place! From sports, sciences, law, you name it.

The interdisciplinary approach is really important. Otherwise it is not possible to understand what is going on in this space and what is special about blockchain. Additionally, the diverse backrgrounds foster new ideas. These classes allow students who otherwise would have never met to connect.

Blocks99

This summit is all about the future of finance. What do you think lies in the future of finance, and specifically the role of blockchain and distributed ledger technology in relation to other exponential technologies?

Fabian

I’m really excited about the implications of blockchain and I think it’s important to note that this is the first time we have a truly decentralized way to verify databases. That said, when we look at the current applications of blockchain, it reminds me a little bit of the early years of the Internet where everybody wanted to be in control and create their own proprietary ecosystem. It’s exactly the same now with blockchain. So many companies want to launch their own permissioned blockchain and control the ecosystem. I think that’s a really bad idea. The really innovative part about blockchain requires a public ledger. Access restrictions and special privileges undermine the advantages of blockchain and may – in many cases – just create highly inefficient, but still centralized, databases. As such, I am an advocate of public blockchains and believe that many of the permissioned ledger applications will disappear.

Blocks99

You co-authored an article on asset tokenization using blockchain for equities. Could you go over the main points?

Fabian

The article looks at various ways to tokenize assets. Basically from colored coins, to external transaction graphs and smart contract-based token standards. We then show that pretty much all of the tokens that get issued these days are based on smart contract infrastructure, and get issued through the ERC-20 token standard. And then we argue that it’s a great opportunity for crowdfunding if – and that’s a big IF – we can solve the regulatory issues. Fortunately, Swiss regulators usually take a reasonable approach. So I’m quite optimistic. But as we all know, regulatory changes don’t happen overnight.

Blocks99

What sort of advice could you give to a regulator?

Fabian

Personally, I’d like to see them give public ledgers a chance. It should be in their interest, as public ledgers could potentially lead to much more open, transparent and robust financial systems. Furthermore, it would be a great answer to “too big to fail” issues. It is a common misconception that public ledgers cannot be restricted in any way. It would for example be totally feasible to implement KYC/AML restrictions on the token itself instead of using a permissioned ledger.

Blocks99

The University of Basel recently entered into a partnership with Crypto Finance Conference in St. Moritz. Could you talk about the cooperation? What its purposes and goals are?

Fabian

Yes, that is something we usually won’t do. However, the CFC is the number one conference in the space. It is amazing what Nicolo Stöhr and his team are doing year after year! So, we decided to work with them and I am very proud that the University of Basel’s Center for Innovative Finance has a partnership with this amazing conference.

Blocks99

As a university professor, I don’t know how many students have passed through your hands, but I’m sure it’s more than a few, and you’re shaping these people’s views of the finance world. Is there any piece of advice you could give to young people who are considering a career in finance?

Fabian

Take our classes – that’s the first step! Be open minded. I think it’s really important that you look into the technology. Thinking that you will be able to understand the novelty of blockchain without understanding what is going on under the hood would be naïve. I’m not saying that business students have to start working on protocols and contribute to Bitcoin Core, but they have to at least be able to read simple code and know what’s going on behind the scenes. What we’re experiencing in the financial world a lot of times is that people don’t really understand the technology. And that’s really dangerous, because then you run a risk of applying a technology in a way it doesn’t make any sense.

Blocks99

Let’s talk about DeFi. Will it disrupt traditional finance or not?

Fabian

I’m not sure if it’s going to replace it. I think it can be complimentary, to be honest. But I think there’s definitely a place for DeFi and it’s here to stay. I’m really excited about the interoperability when you’re looking at all these different projects. You can go to a decentralized exchange, create derivatives, loans or issue tokens yourself. All of these pieces are interconnected, open and – in most cases – completely transparent. That is exciting.

Two of the projects I’m currently most excited about are Uniswap and MakerDAO. Uniswap employs a beautiful and truly decentralized design. It does not even require a price feed. It’s a relatively simple, yet very elegant solution. And MakerDAO is a great example of incentive design. It is my favorite approach to stablecoins, and certainly a very interesting experiment. That said, please do not forget to add a no investment advice disclaimer (laughs).*

Blocks99

What do you think of corporate stablecoins like Libra?

Fabian

I think that many of these projects are heavily centralized and somewhat dangerous. If I recall correctly Facebook currently has around 2.4 billion monthly active users. So I am convinced that Libra would have great potential if they can launch it successfully. What worries me a lot is that it essentially is completely centralized. I am not convinced that we should give control of a currency as well as a token and smart contract platform that have the potential to become a critical component of our world economy to a few companies – especially not if some of them have a relatively poor track record in terms of data usage. So in short, I am worried and would rather like to see the public blockchains succeeding.

Blocks99

Thank you for sharing your thoughts!

*Please note: Blocks99 does not provide legal or investment advice. Please refer to our legal text.

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