Blockchain-based innovation in post-COVID-19 trade finance

Abstract

While trade finance has been recognized as a key enabler in international trade, there is a persistent gap between supply and demand. This gap threatens to widen after the shocks suffered during the COVID-19 pandemic, which increased risks percep- tion and decreased credit appetite. As a parallel phenomenon, distributed ledger technology (DLT), aka blockchain, has given birth to the decentralised finance (DeFi) paradigm, promising to revolutionize banking and the whole financial sector. This paper enquires whether a DeFi-based business model could address the trade finance gap problematic under the context and challenges created by the COVID-19 pandemic, particularly in relation to SMEs located in developing and least developed countries. To this end, it designs and presents a DeFi trade finance business model, showing how it could address the reasons behind the trade finance gap, while developing at the same time a broader meaning of the DeFi concept itself