Fintech Thesis Q&A: Henrik Axelsen

Henrik Axelsen , Co-founder of PixelPai , sat down with Copenhagen Fintech to discuss his Fintech PhD on: “DAOs and Blockchain for Regulated Finance - Transformative decentralization.” Submitted on July 31, 2024, and to be defended on October 28, 2024, at KU’s Department of Computer Science – open for people to come and listen!?

What was your topic, and why did you choose it?

"My PhD dissertation is titled: DAOs and Blockchain for Regulated Finance - Transformative decentralization. When I left corporate life to become a business angel and mentor with Copenhagen Fintech, my first mentorship was with Digishares, a startup focusing on real estate tokenization. That made me want to learn more about blockchain, and since I am not a native crypto gen Z, I thought academia would be relevant. There was an ad for a PhD Fellowship in the computer science department at the University of Copenhagen, which I applied for. And here we are, three years later."

What are the key findings of your study?

"The PhD dissertation consolidates six publications into a comprehensive assessment framework for determining when Decentralized Autonomous Organizations (DAOs), a new form of blockchain-based organization, and Decentralized Finance (DeFi) protocols – that is, financial services on permissionless public blockchains - are suitable for regulated financial services. It explores the effective implementation of distributed ledger technology (DLT) in regulated environments to reduce costs and enhance operational efficiencies.

The research categorizes the publications by financial services domain, using prototyping and analysis to balance decentralization ideals with regulatory requirements. The dissertation is primarily grounded in socio-technological theories. It offers practical tools for evaluating the suitability and compliance of DAOs in regulated financial services, mapping DAOs to organizational design theory, and highlighting their potential to reduce transaction costs and enhance trust."

What are the recommendations from your research?

• The research provides insights and tools that deepen the understanding of DAOs' potential and limitations in digital finance, offering a foundation for future research and practical applications.
• By incorporating law, economics, organizational theory, and Information System perspectives, the dissertation highlights the need for new regulatory frameworks to accommodate DAOs and DLT.
• It suggests that while DAOs and DeFi protocols can reduce transaction costs and enhance transparency, their application in regulated finance is limited by compliance challenges and the need for complete decentralization.
• The analysis suggests that 'sufficient decentralization' is a mirage and that complete decentralization needs to be present on three dimensions—technically, organizationally, and in service availability to the public—which is the only viable option for DeFi in regulated financial markets.
• While we have yet to see whether the new EU MICA regulation and this high bar for decentralization will mean the end for DeFi and financial services DAOs in the EU, blockchain technology appears generally beneficial for finance involving untrusted parties, where intermediaries usually fulfill this role at a very high socioeconomic cost.

What are your future ambitions career-wise?

"Well, it so happened that during the course of my studies, I worked with some great people, developing and testing a new financial infrastructure based on distributed technology. While I was promoting that project with Copenhagen Fintech at the Singapore Fintech Festival, I met a CEO of a gaming studio helping big brands create NFT games and leverage their story into new platforms. We thought we should make a new digital network state – in the cloud called Republic of Reality+. We received a grant from Copenhagen Fintech to pursue that idea but were quickly overwhelmed by generative AI. Instead, we did a project to see how AI could automate off-chain governance in pseudonymous gaming – or organizations like DAOs.

That eventually led to where my future career is – PixelPai - a startup located in the Copenhagen Fintech lab. So, my future career ambitions were conceptualized, born and now raised in Copenhagen Fintech - shaping the future financial internet –the ‘Finternet.’!"

Thanks for the chat and for sharing your insights with us, Henrik Axelsen . Remember that Henrik's PhD defense is open to the public! Join and listen in: PhD defense by Henrik Bj?rn Axelsen – University of Copenhagen.

?? Also, Henrik will share his insights with us at our next Fintech Tuesday: Towards the Finternet, a groundbreaking concept in global finance. Learn more or sign up here.