FROM the telegraph to the mainframe, technological change has long shaped the finance industry. Today we stand at a new inflection point. Decentralised finance, or DeFi, which uses blockchain-based smart contracts to automatically execute a variety of financial transactions without human intervention, has the potential to be the next great transformative force – but only if established institutions play a much bigger role.

Trillion of dollars of stocks, bonds, currencies, and other assets are traded around the world every day, but transactions typically go through multiple intermediaries and require the reconciliation of records across numerous institutions and ledgers. That costs time and money – it can take up to four days to settle many cross-border trades.

DeFi technology can cut through much of that inefficiency by presenting transactional and ownership information on a single, shared ledger, enabling trades to be settled almost instantaneously. Automating transactions with DeFi software protocols and smart contracts can generate further efficiency gains. The growing use of tokenisation, which creates digital representation of real-world assets on the blockchain, can extend those benefits to the world’s vast markets for stocks, bonds, commodities, and other major assets.