What can Private Debt learn from DeFi Litigation
Scott Reid
Head of Debt Capital Markets, APAC, Alter Domus | Private Debt Markets | Loan Administration | Loan Agent | Facility Agent | Security Trustee | Private Credit Markets | Venture Debt
The collapse of FTX, Celsius, Genesis, Voyager, BlockFi, Bitconnect et al highlight a governance gap in popular crypto platforms.
Crypto Gap
While crypto flexed 21st century digital capabilities around tokenization, digitization, payments, trading etc they failed at the mundane task of ‘Governance' and ‘Collateral Control’.
TradFi vrs DeFi
In TradFi there was historically a disconnect between parties’ legal rights (ie as negotiated in the finance docs) and payment rights.
Legal rights were negotiated first in the finance docs, followed by payment.
Cleverly, crypto innovation managed to merge the ‘legal rights’ and ‘payment rights’ into a single digitized form.
DeFi Limitations
Ironically, the ‘DeFI’ crypto collapses involved powerful ‘centralized’ intermediaries failing to implement basic corporate governance leading to massive investor losses.
In contrast, TradFI uses familiar governance practices (ie 'Organisational' and 'Collateral Control' strategies), however encumbers us with inefficient legacy systems and intermediary relationships.
Transactional Tokens
In a similar way that a credit card triggers the issuance of a token to facilitate payment with a ‘tap’, we could encourage DCM markets to innovate ‘Transactional Tokens’ (TT) to enable transactions.
TT could be a universal contractual mechanism that replaces the ‘back-office’ operational mechanics that sits behind traditional corporate, partnership and trustee structures.
How would you combine DeFI with TradFi for profit?