Bank of Italy’s Innovation Hub partners with Polygon and Fireblocks for DeFi project.

Bank of Italy's Innovation Hub partners with Polygon and Fireblocks for DeFi project.

The Rise of Institutional DeFi in Italy: A Partnership between Bank of Italy, Polygon, and Fireblocks

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The blockchain industry has witnessed a significant development as the Bank of Italy, in collaboration with the Ethereum scaling team Polygon and crypto infrastructure provider Fireblocks, embarks on a pilot program to establish a regulated platform for “institutional DeFi.” This partnership marks a significant milestone, bringing together a G7 Central Bank, financial regulators, and associations of banks to explore the potential of blockchain technology and decentralized finance.

Exploring the Potential of Blockchain Technology and DeFi

The concept of DeFi, or decentralized finance, revolves around innovative financial technology that operates on decentralized protocols, aiming to provide inclusive and transparent financial services. The Bank of Italy, along with Milano Hub, the innovation center of Italy’s central bank, expressed excitement about exploring the potential of blockchain technology and the DeFi sector, despite the recent negative sentiment surrounding the blockchain industry.

Creating a Regulated Environment for Security Token

The DeFi pilot program initiated by the Bank of Italy aims to establish a regulated environment for security token trading. This partnership underscores the continued interest of major financial institutions in blockchain technology, despite the recent global crackdown on cryptocurrencies. Italy’s approach to regulating crypto has been evolving, with the government introducing a 26% capital gains tax on crypto profits in the 2023 budget passed in December.

Earlier, the Bank of Italy published a 34-page report criticizing cryptocurrencies for failing to deliver on promises regarding the efficiency, resilience, and transparency of the financial system. While acknowledging the risks associated with the sector, the report called for tighter regulations while expressing support for DeFi and regulatory-compliant crypto activities.

Under this partnership, selected projects will receive development support starting later this month. Participants will benefit from mentorship and guidance from Milano Hub, featuring seminars, events, and conferences with experts in banking, finance, and regulatory matters. Besides Polygon Labs and Milano Hub, other participants in the consortium include Fireblocks, an institutional digital asset custodian, and DVRS, a development team focused on automated market maker exchanges. Several Italian banks, asset management companies, and financial institutions will also actively contribute to the initiative.

Support from Cetif Advisory for the DeFi Project

The DeFi project, known as “Institutional DeFi for Security Token,” will receive support from Cetif Advisory, a consultancy associated with the Università Cattolica del Sacro Cuore of Milan’s Cetif Research Centre. Cetif Advisory will coordinate the efforts between Polygon Labs, Fireblocks, tech developer Reply, legal and tax consultant Linklaters, and web3 studio DVRS.

The platform aims to facilitate traditional financial institutions in experimenting with security tokens and conducting transactions using DeFi infrastructure in a secure and regulated manner. This initiative aligns with the ongoing exploration of central bank digital currencies (CBDCs) by central banks worldwide, as they seek ways to integrate blockchain technology into their existing payment systems.

Tokenization has emerged as a major trend in the crypto space, with traditional financial institutions and crypto asset firms embracing this concept to tokenize various assets like bonds and equities on the blockchain. According to a report by Bank of America, this transformation is expected to make transactions more efficient and reduce costs, thereby ushering in a more efficient financial infrastructure.

In conclusion, the collaboration between the Bank of Italy, Polygon, and Fireblocks signifies a crucial step in the development of institutional DeFi. Through this pilot program, a regulated environment for security token trading will be established, demonstrating the continued interest of major financial institutions in harnessing the potential of blockchain technology. As central banks worldwide explore blockchain integration and tokenization gains momentum, the future of the blockchain industry appears promising and transformative.