Exploring the Intersection of TradFi and DeFi: Deep Dive with Nikhil Joshi, COO of EMURGO

The transition from traditional finance (TradFi) to decentralized finance (DeFi) is not just a shift in industry but a paradigm shift in how we understand and interact with financial systems.

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Nikhil Joshi, Chief Operating Officer of EMURGO, exemplifies this journey. With a robust 15-year career at Barclays and an artistic inclination toward literature and philosophy, Joshi has navigated the complex terrains of both sectors, bringing a unique blend of traditional financial acumen and innovative Web3 perspectives to his role at EMURGO.

In this interview, Joshi delves into the motivations behind his move from Barclays to EMURGO, highlighting how his background in TradFi has informed his approach to DeFi. He sheds light on the potential for harmonious collaboration between these two financial realms, the strategies EMURGO employs to drive adoption within the Cardano ecosystem, and the critical role of partnerships and education in advancing blockchain technology.

Join us as we explore Joshi's insights on the future of blockchain adoption, the impact of strategic alliances like EMURGO’s partnership with Huawei Cloud, and the vital steps needed to foster confidence among traditional financial players in the evolving landscape of decentralized finance.

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Nikhil, what inspired your transition from a 15-year career at Barclays to joining EMURGO in Web3, and how do your TradFi insights benefit the DeFi space? How can collaboration between TradFi and DeFi mature the Web3 sector?

My move from traditional finance (TradFi) to the world of Web3 has been shaped as much by professional experience as it has by my personal interests. My “default setting” is more arts than business-oriented - I studied French Renaissance literature and 20th century philosophy at university. I also love music and film. Some of the socio-economic and philosophical ideas stemming from Web3 therefore strike a chord (pun intended) with my own curiosities.

However, going back to the start of my career, I took a counterintuitive step in training to become a chartered accountant before moving to banking. The earlier part of my banking career involved working with structuring desks to optimise capital relief, whilst also lobbying regulators on incoming capital rules, culminating with the GFC, which was an eye-opener for me on two (positive and negative) counts: (1) the power of diversification of risk via securitisation; and (2) a correlation between the complexity of regulatory rules and a resulting incentive to game them.

I relocated to Singapore in 2013, shortly after which Barclays chose to reduce much of its Asian footprint. As a consequence, I spent much time grappling with region-specific challenges including revenue, funding, capital, geographic footprint and credit risk appetite. At the same time, I started exploring new technologies that could help banks mired in an inability to make revenue coupled with having no risk appetite.

This is where I discovered Bitcoin and blockchain. It took a while but I started to see the technologies’ merits. Immediate settlement provides huge capital benefits. Living in a region where not all fiat currencies enjoy the stability of other nations, or where huge fees for cross-border remittances are commonplace, the appeal of Bitcoin started to make sense.

With fractionalisation, the potential for someone with $10 of investable assets to accrete wealth through tokenisation of real-estate securitisation becomes increasingly apparent. On a more personal level, the merits of crypto in a creator economy are invigorating to think about. Perhaps most appealing is the idea of digital nation-states and their implications for language, social strata and cultural identity.
"This marked a turning point in my career: I left banking to initially address pain points in trade finance using private chains, but it was soon obvious the more compelling possibilities, especially within finance, lay with public permissionless chains. This led to Cardano and ultimately EMURGO, where I joined as COO."

Nikhil Joshi, Chief Operating Officer of EMURGO
I learnt a lot in two decades in TradFi, and I’m grateful for having had the opportunity to chisel my skills in financial products; structured thinking and approach; an ability to communicate (that means listening more than speaking!) with a varied audience across linguistic and cultural differences; and practising emotional intelligence.

At my last count, there were only two Fellows of the Institute of Chartered Accountants in England & Wales (ICAEW) based in Asia able to speak with authority on crypto, and I am one of them. That training instilled a healthy scepticism that I apply every day. That’s not to suggest an outright absence amongst crypto-natives or within DeFi, but a certain maturation in all respects would not be a bad thing.

What’s required for cohesive collaboration is to firstly baseline terminology. As an example, the words “Crypto” and “DeFi” still engender tribalism between some quarters of “ye olde worlde” of TradFi and crypto-native degens. That’s because there’s a spread on what crypto represents to both sides, but, in reality, TradFi and DeFi aren’t mutually exclusive. Similar to banking days, I see a need to explain terms and to hand-hold your audience (be they colleagues, clients or regulators). Equally, the old adage of “win the argument, lose the sale” very much applies here.

Secondly, there ought to be an acceptance that aspects of the technology will have a purpose to serve in some quarters, but not in all. Thirdly, regulation can’t keep plastering over the cracks; at some point, a global wholesale rewrite is required to account for technology as being intrinsic to Finance, rather than an ancillary application.

As the COO of EMURGO, you play a pivotal role in increasing commercial adoption. Could you share some insights into the strategies EMURGO employs to drive adoption within the Cardano ecosystem?

At EMURGO, we’re here to facilitate the commercial adoption of Cardano through partnerships, education and provision of technology infrastructure which finance applications can be built on over time.

Partnerships are a two-way flow: we help Cardano-based projects grow and market themselves to a global audience; at the same time, we work with Web2 organisations to get better proximity to Cardano. Cross-industry collaborations, especially with tech giants that sit on the periphery of Web3, help to promote greater awareness of blockchain technology’s advantages while lowering seemingly intimidating barriers to entry for non-Web3 natives.

Through mutual engagements, we share information and tools to expand their knowledge and expertise which goes a long way to translate their curiosity into a commitment to explore and innovate in Web3 – this will ultimately drive the overall growth of the ecosystem.

Education is key to the industry’s success. In recent years, we’ve developed tailored blockchain courses and equipped thousands to transition to a career in Web3. These courses help to raise awareness among technical developers, business professionals and non-technical learners to better understand the fundamentals of blockchain, its use cases, and how to ultimately leverage blockchain for impactful products & services.

We’ve also supported startups through incubation programmes, providing financial resources, facilitating investment, mentorship, and technical support to incubate and accelerate these ecosystem players within the Cardano ecosystem, especially in Africa and the Middle East through our regional entity EMURGO Africa and joint venture projects such as Adaverse, an Africa-based Cardano accelerator program.

EMURGO focuses on providing products and services to drive the adoption of Cardano’s Web3 ecosystem. What are some key initiatives or projects that EMURGO is currently working on to achieve this goal?

EMURGO has been actively collaborating with major companies such as Huawei Cloud, GSR and Cactus Custody to provide more options for projects building on Cardano. These are building blocks that, as we engage with more high-calibre players, will result in greater awareness of Cardano, increase capital inflows to the ecosystem, and improve liquidity.

We have also made strategic investments in innovative Web3 projects like NMKR and Maestro to expand the use of Cardano’s open-source public blockchain network for Web3 solutions.

NMKR focuses on making Non-Fungible Tokens and tokenisation accessible to a wider audience. Their user-friendly platform (NMKR Studio) allows users to create and sell NFTs, even without coding experience. In addition, they have a fiat on-ramp solution called NMKR Pay which allows creators to easily accept payments using credit or debit cards, eliminating the need for buyers to have cryptocurrency beforehand. This removes a big hurdle for new users entering the NFT space.
"Overall, Maestro is a one-stop shop for Cardano developers and businesses, offering the tools and resources to make building applications on Cardano easier and faster. Projects can raise funds through a method called an ISPO (Initial Stake Pool Offering), where investors support the project by staking their Cardano tokens."

Nikhil Joshi, Chief Operating Officer of EMURGO
We’re working on a significant number of similar collaborations with both Web2 and Web3 players, which we’ll announce in the coming weeks and months. Watch this space!

EMURGO recently cemented a partnership with Huawei Cloud to deepen the development of Web3 solutions across the Web2 and Web3 ecosystems. How do you envision this partnership shaping the future of blockchain technology adoption?

Our partnership with Huawei Cloud is a significant milestone for EMURGO and the Cardano ecosystem. As one of the world’s largest cloud computing companies, Huawei Cloud's entry into the Cardano ecosystem will not only bolster the overall development of Web3 solutions on Cardano, but also signal the lowering of barriers to entry for non-native players who can now utilise Cardano node set-up services and tech infrastructure to more easily build solutions on Cardano.

This partnership benefits Web3 players as well, since traditional tech giants have the scale, reach and trusted brand equity that many Web3 companies have yet to achieve. Web3 developers can more easily use its services and save time to run a Cardano node when building applications, utilise its cloud infrastructure for applications, and more.

We believe that such cross-industry collaborations are essential to enhancing the accessibility of Web3 innovation, broadening the impact of blockchain capabilities and ultimately, accelerating its adoption at scale.

With your background in both TradFi and DeFi, how do you see cohesive collaboration between the two sectors contributing to the maturity of the Web3 sector?

Cohesive collaboration between traditional finance (TradFi) and proponents of decentralised finance (DeFi) is critical for the maturation of the Web3 sector. TradFi has extensive experience navigating regulatory frameworks and, at least historically, earned the public’s trust. These are invaluable for building confidence in DeFi platforms and mainstream adoption – be it for blockchain technology or DeFi services.

Moreover, TradFi's domain expertise and extensive access to capital can help support the scalability and security of emerging DeFi solutions, ultimately fostering innovation and accessibility. Collaborative efforts between the two sectors can jointly strengthen regulatory frameworks, drive seamless interoperability, and broaden the impact of blockchain capabilities too.

This is why cross-industry collaborations, particularly with tech titans and non-Web3 natives, are essential. These partnerships facilitate knowledge exchange and resource-sharing, driving mutual growth, innovation and overall adoption.

TradFi players are increasingly exploring opportunities in the Web3 space, but regulatory uncertainty and market volatility remain significant challenges. What steps do you think are necessary to overcome these obstacles and foster greater confidence among traditional players?

It has to start with better education and raising awareness of the problems that exist today, the opportunities that blockchain technology can provide, and a reasonable tolerance for trial and error.

Education applies to all levels be that regulators, institutions or end clients. But this presents a practical challenge of who takes on that responsibility; alignment in their positioning of the problems and opportunities; prioritisation of which segment you tackle first; as well as, of course, the other side’s willingness to come to the table. The approach to these types of discussions is very fragmented right now, and the challenge is compounded by crypto’s characterisation in media.

There is work within certain industry associations and some engagement of regulators, although it’s typically isolated to security and anti-money laundering (AML) discussions. Yes, establishing industry-wide standards for things like security, tokenisation, and AML will go a long way in building trust and mitigating risk. However, the scope of those discussions needs to broaden to allow a greater understanding of the underlying technology and the potential of its application.
"To move forward with pace also requires a pragmatic approach, such as pilot programmes where TradFi institutions can experiment with Web3 technologies in a controlled environment, so they can learn the ropes and build confidence. Seeing tangible DeFi applications drive commercial value is likely to persuade many stakeholders of its merits."

Nikhil Joshi, Chief Operating Officer of EMURGO
Beyond education, a global framework is paramount, especially in a digital realm, to avoid unlevel playing fields. Governments and financial authorities need to provide clear guidelines for TradFi institutions to operate in the Web3 space. This will give them the confidence to invest and innovate without fear of regulatory blowback.

At the same time, there is something to be said for seeking forgiveness later over permission upfront. I’m not suggesting that TradFi ought to breach any regulatory requirements, but there is oftentimes a need for judgement calls and a little more tolerance for making mistakes in the pursuit of something better would not be amiss here.

What are some of the misconceptions surrounding the crypto and blockchain sector, particularly from the perspective of traditional finance, and how can these be addressed to encourage greater adoption?

Misconceptions are typically anchored in matters of security, volatility, regulatory uncertainty, and association with illicit activities. The root of the issue is trust. The biggest hurdle to widespread Web3 and blockchain adoption is a lack of credibility – an unfortunate product following reports of crypto hacks, illicit activities and industry failures.

Policy and regulation ought to exist to set the rules of the road and act as a back-stop to protect against certain behaviours. Clear and well-defined regulations that provide a framework to encourage responsible development is important.

However policy and regulation will not, in of themselves, turn the tide for DeFi. That will be spearheaded by early innovators demonstrating the real commercial value in, and integrity of, DeFi.

Could you elaborate on the importance of partnerships between DeFi and TradFi players in exchanging learnings and insights to mature the Web3 sector?

Collaborations between DeFi and TradFi players are absolutely crucial to the maturation and widespread adoption of Web3 innovations. By fostering an exchange of knowledge and insights, both industries can address challenges and seize opportunities.

Traditional finance has a long history charting the path that DeFi now treads, albeit the latter at a much faster pace. TradFi can share the bumps and hurdles encountered, such as risk management, compliance or ways to engage with policymakers, enabling DeFi platforms to improve their product or service, while also enhancing their credibility and stability, paving the way for broader acceptance and integration into mainstream finance.

Conversely, DeFi brings cutting-edge technologies, such as smart contracts and decentralised exchanges, which have the potential to significantly enhance efficiency and automation in financial processes. Traditional institutions can leverage these innovations to streamline operations, reduce costs, and offer more sophisticated financial products and services. By integrating DeFi advancements, traditional finance can remain competitive and better evolve their services according to customers’ needs.

As governments around the world start to improve their knowledge about DeFi and create discussions to promote healthy innovation, more partnerships could be on the horizon which would help the development of the space.

Given your involvement in strategic initiatives at Barclays, how do you think traditional financial institutions can leverage blockchain technology to improve efficiency and address challenges in their operations?

Blockchain technology has produced new products, as well as new ways of doing things, offering a smorgasbord of monetisation opportunities, as well as improvement in operational matters. At its core, DeFi exists on top of smart contract functionality which removes the need for intermediaries. This lowers transaction costs and allows for quicker settlement, freeing up capital.

It’s fair to say there has been limited innovation in TradFi for some years, while DeFi has introduced several interesting concepts in a short time. While decentralised exchanges (DEXs), automated market-makers (AMMs) and perpetual swaps may not be adopted in their entirety within TradFi, there are components of the way they work that will benefit TradFi.
"Asset tokenisation is one area where decentralised blockchain technology provides a unique value proposition. Assets such as stocks, bonds, commodities and real estate can be digitised and tokenised on a blockchain."

Nikhil Joshi, Chief Operating Officer of EMURGO
These can be fractionalised and transacted, adding to the liquidity of assets on a global scale, enhancing transparency through the use of token metadata, and increasing visibility through real-time accessibility of token information, among other benefits. At EMURGO we have built such a platform and are working with organisations interested in tokenising assets.

Financial institutions bear huge administrative burdens to satisfy arduous, but not necessarily effective, KYC and AML requirements. Advances in zero-knowledge proof (zkProof) and related decentralised identity (DID) technology will go some way to improving those processes, reducing the overhead while also improving the intended outcome. This is as much about protecting the institution from would-be criminals as it is about expanding a client base because a given client can now demonstrate their credentials or worthiness.

Rather than resisting inevitable market forces or opting out, we believe traditional financial services firms should prioritise initiatives that can be developed, scaled, and monetised, while effectively addressing real problems related to transaction frictions. As the adoption of blockchain technology and smart contracts expands, users of financial services will continue to value sound advice and simplified transaction processes.

Education plays a crucial role in driving adoption within the blockchain space. How does EMURGO approach educating both traditional players and newcomers about the potential of blockchain technology?

We fundamentally believe education is key to unlocking mainstream adoption. At EMURGO, we provide both institutions and individuals with requisite knowledge, resources, and opportunities to navigate the blockchain ecosystem. In the end, businesses can streamline processes, reduce costs and discover new business opportunities.

Our programmes are both technical and non-technical since understanding the application of blockchain is as important as understanding how to construct the blockchain. Our content is suitable for novices as well as those looking to consolidate existing knowledge. In addition to courses for individuals, we also create bespoke content for institutions, corporate or academic.

Ultimately, we want to bridge the knowledge gap and empower both existing players and newcomers to fully harness the potential of blockchain technology.

EMURGO operates in a rapidly evolving regulatory landscape. How does the company navigate regulatory challenges, and what role do you see government bodies playing in shaping the future of blockchain technology?

Regulators typically try to crowbar existing rules into new products and applications resulting in square peg-round hole treatment with unintended consequences. But we do see pockets where there is an appetite to start from scratch, using the advent of this technology as an opportune time to holistically revisit the entire framework, rather than snip at the edges.

For example, EMURGO was privileged to have participated in the Wyoming Stable Token Commission, contributing insights to inform the Wyoming Stable Token Act. In Japan, EMURGO has also participated in helping to drive awareness of DAOs and their use cases as the country starts to actively discuss and create frameworks to support the expansion of Web3.

Such collaborative engagements are crucial to augment blockchain comprehension and ensure the technology can be used to its full potential across industries. We hope to continue our collaborative efforts with government bodies worldwide and help unlock the full potential of blockchain technology as part of a more transparent and inclusive future.

Looking ahead, what are your predictions for the future of blockchain technology adoption, particularly in terms of collaboration between traditional finance and decentralized finance?

Looking ahead, I see a significant rise in blockchain adoption, driven by increased collaboration between TradFi and DeFi. As blockchain technology advances, the lines between TradFi and DeFi will blur, creating a more integrated financial landscape.

Traditional financial institutions are increasingly realising the potential of blockchain to boost efficiency, cut costs, and introduce innovative products. As such, I expect more partnerships between established finance players and DeFi platforms, resulting in hybrid financial solutions combining the strengths of both. These solutions will improve cross-border payments, asset management, risk management and liquidity.

Although we have seen growing interest in cryptocurrency Exchange-Traded Funds (ETFs) in the US, Hong Kong and Australia, the recent spot ETH ETF approval in the US marks a monumental shift in the political positioning of crypto in the biggest market in the world. Coupled with an increasing demand for stablecoins and a burgeoning narrative on real-world asset tokenisation, this all signals an increased pace of development of high-quality DeFi trading solutions for institutions.

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About Nikhil Joshi

Nikhil Joshi has oversight of EMURGO's strategic and operational execution, centred on Fintech and Education products and strategic investments.

Prior to EMURGO, he was COO at a Singaporean startup looking to solve trade and supply chain woes using private blockchains, such as Hyperledger Fabric and Corda. His primary mandate was fundraising for which he successfully closed a Series A during Covid.

He also spent over 15 years with Barclays in London and Singapore, improving capital efficiency for New York and London structured credit desks, as well as lobbying global regulators on Basel I-IV. Latterly, he was involved in strategic and tactical initiatives using revenue, cost, funding, capital and liquidity levers to improve Return on Equity for Barclays' Asian business. He also worked extensively with Senior Relationship Management and IBD parts of the business on client strategy and cross-selling.

About EMURGO

EMURGO is a global blockchain technology company and a founding entity of the Cardano blockchain, based in Singapore. EMURGO provides products and services to drive the adoption of Cardano’s Web3 ecosystem via education, investment, and infrastructure development.

For more information, visit https://www.emurgo.io/