Hamburg Commercial Bank AG (HCOB) is a private bank headquartered in Hamburg. HCOB offers its customers a high level of structuring expertise in real estate financing and has a strong market position in international shipping.

In Europe-wide project financing for renewable energies and digital infrastructure, it is considered a pioneer. The bank also offers customized financing solutions for the global aviation sector as well as for national and international corporate clients. Reliable and timely payment transactions, as well as products for foreign trade, round out the offerings.

Hamburg Commercial Bank has recently published an interesting study on Decentralized Finance (DeFi) in collaboration with Berlin-based FinTech Bitbond. In the nearly 20-page study, the authors explain the particularities of various DeFi protocols and examine, using the example of the DeFi platform Compound, to what extent new providers are already an alternative to traditional banks.

Currently, DeFi protocols still have a niche existence in financial markets. The idea behind Decentralized Finance models is that services such as those provided by banks, asset managers, or exchanges can be represented by code programmed on a blockchain. These business models allow for financial transactions to be carried out directly – without intermediaries – and therefore particularly cost-effective and fast.

The fundamental finding of the study: DeFi protocols currently have a niche existence in the traditional banking system. However, banks should not underestimate the dynamics of this technology and keep a close eye on the advantages of decentralized blockchain solutions, which, for example, offer a fast, cost-effective, and risk-free execution of securities transactions.

DeFi business models offer great opportunities for banks. Using the case study of Compound, a pioneer company in the field of Decentralized Finance, the advantages and disadvantages of DeFi protocols are illustrated. The high level of transparency offered by the Compound approach is particularly fascinating. At the same time, the handling of transactions on this, as well as other DeFi platforms, is quite complex.

This shows that DeFi business models are still relatively far from mass appeal. However, greater progress can certainly be expected in the coming years. In the medium and long term, DeFi business models have the potential to redefine the role of banks.

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