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In recent years, we’ve witnessed a global surge in institutional adoption of digital assets. There are many advocates for it in the MENA region, but it’s still common for there to be confusion on what we mean by digital assets. Simply put, a digital asset is a digital representation of value that is created, traded, and stored digitally, is uniquely identifiable, and has an owner. These digital assets are recorded on a secure blockchain ledger, which is a type of shared database that records all transactions.
For example, cryptocurrency is a digital form of currency that is stored on the blockchain. Other categories of digital assets include stablecoins, which are designed to provide price stability, non-fungible tokens (NFTs) that prove ownership of digital items, and security tokens, which are digital tokenized versions of things like stocks, bonds, and “real world” assets like property. Blockchain technology can improve transaction speeds, reduce costs, automate payment processes, and enhance security, and -with the collaboration of regulators and financial ecosystem partners- drive the next generation of regulated financial infrastructure.
Historically, the main challenges around adoption have stemmed from regulatory uncertainty, a lack of awareness of which partners institutions can trust, and safety and security concerns over the custody of digital assets. It’s important to address that where there is a lack of education and uncertainty around an asset class, it can become a place where the nefarious and criminal can take advantage. The digital assets industry has been rocked by cases of fraud, Ponzi schemes, and rug pulls that have hurt institutions and end customers alike.
But misappropriation of funds, unlawful actions and unexpected scenarios occur in the existing financial ecosystem too. The largest Ponzi scheme of all time was run by Bernie Madoff, who was once the chair of the NASDAQ Stock Exchange, but people still choose to invest their money with fund managers. And there’s been the collapse of banks like Lehman Brothers and Silicon Valley Bank, but customers still ultimately trust their money in the banking ecosystem. It underlines that an entire industry shouldn’t be judged by the errors of the few, but the right regulation and systems should be in place to strengthen it.
In fact, digital assets and cryptocurrency infrastructure is now incredibly robust. Identities are verifiable and secure. It’s easier to track and trace funds and activity. And, with the addition of high quality regulation in the UAE as well as the participation of respected financial institutions, the country’s digital assets industry can now be regarded as one of the best in the world.
DIGITAL ASSETS IN THE MENA
It has taken time to demystify the concept enough for decision makers in large institutions to understand and trust digital assets. Now, according to a worldwide EY Parthenon study of more than 250 institutions, 93% of respondents believe in the long-term value of blockchain and digital assets. And here in the MENA, we are part of the fastest growing digital assets hub in the world. It’s already the sixth largest crypto region, with nearly US$400 billion of blockchain transactions between July 2022 and June 2023 (around 7.2% of all global transactions). With such volume and acceleration, it’s understandable that well-established banks and up-and-coming fintech startups, want a piece of the action.
Related: The UAE’s Crypto Powerhouse: Munaf Ali, Co-Founder And Group Managing Director, Phoenix Group
The MENA region, and particularly the authorities within the UAE, have led the global charge towards creating a trusted, regulated environment for digital assets. It’s one of the primary reasons that we at Fuze chose the UAE as our headquarters, as regulation builds trust, which is all-important across the financial landscape. We are now working closely alongside the regulators to support infrastructure that will allow customers to buy, hold, and sell digital assets and cryptocurrencies through their preferred banking and fintech apps.
There are some strong examples of this globally, which have seen remarkably high adoption rates. Digital bank Revolut and consumer fintech platform Cash App have integrated crypto into their native apps with great success. Three months after Revolut launched its crypto trading service, its user base increased by 70%. Following the launch of Cash App’s cryptocurrency service, on average, users trading Bitcoin brought in four times the amount of money into the Cash App ecosystem than other services.
EY Parthenon’s study also showed that 90% of institutional investors have more confidence in traditional finance (TradFi) organisations for custody of their crypto assets. In fact, 50% of respondents said they would switch from a crypto native firm to a TradFi firm if the same digital asset capabilities were offered. This is also reflective of overall opinion amongst consumers. In a recent CNBC interview, Jorn Lambert, Chief Digital Officer of Mastercard, said, “There’s a lot of consumers out there that are really interested in this, and intrigued by crypto, but would feel a lot more confident if those services were offered by their financial institutions.”
A recent report by Henley & Partners also ranked the UAE as having the highest public crypto adoption rate in the world. It shows the raw demand for trusted and regulated digital assets infrastructure, and just as importantly, the desire to be able to buy/hold/sell these assets with their existing banks.
SUPPORTING BANKS AND FINTECHS TO BETTER SERVE CUSTOMERS
Working with a regulated digital assets infrastructure provider such as Fuze enables financial institutions and fintech companies to rapidly and cost-effectively provide digital assets on native apps. Crucially, banks and fintechs already have existing Web2 dashboards for their users, so it is important that the integrated technology deployed for crypto trading provides a smooth flow as well as no change on the user interaction side, while banks can also maintain the same robust risk, compliance, and legal stack.
This integration opens a new world for their customers, with easy navigation of buying, holding, and selling digital assets like cryptocurrency and stablecoins, and even empower seamless and cost effective cross-border remittance. There are a wealth of opportunities.
Banks such as J. P. Morgan and Citi are already exploring how tokenized assets on the blockchain can improve their internal processes too, while Japanese banks are introducing stablecoins to streamline trade transactions. Estimates suggest as much as $5 trillion in assets could be tokenized on blockchain in the next five years. Tokenization promises faster settlement times and reduced costs, with the transfer of ownership of assets on blockchain ledgers settled in near real-time, saving days in administrative processes. It is truly revolutionizing how assets are managed.
At the end of the day, customers, from large institutions to individuals, are demanding seamless digital assets processes. With the right regulated infrastructure built by experts, collaboration between institutions and regulators, and compliance-first use cases, there is a generational opportunity to build greater trust in the digital assets ecosystem, and to encourage responsible trading through the banking and fintech apps that customers across the region already use every day.
This article is from Entrepreneur.com
