Avantgarde of the financial revolution, evaluation of opportunities, bottlenecks, compliance
Avantgarde of the financial revolution, evaluation of opportunities, bottlenecks, compliance
The actors of the decentralized finances (Defi) remained intact, since the uncontrolled control of the off-chain capital of centralized crypto units led to misdeeds and bad businesses and subsequent collapse.
whether bankruptcies of several billion dollars, fraud allegations, rampant scandals or falling prices for crypto-assets, the year 2022 was characterized by tragic events, which were mainly peaked by CEFIS, which in turn improved Defi's promise of value.
The puristic approach "Decentralized first" still has to prevail in the industry, the foundation of which was inspired by distrust of centralized financial pillars. But while the wider industry rises from the toughest crypto winter, Defi is slowly but steadily losing its reputation as an unsustainable idealism. Let us immerse yourself in order to evaluate the opportunities, bottlenecks and compliance in this sector this year.
real world with defi
A move towards real assets marks an union of traditional finance and Defi, which has paved the way for a multi-billion dollar credit market as a decentralized financial ecosystem. Such an integration is based on the strengths of both sectors.
Recently, a private equity company Hamilton Lane has teamed up with the emission company for digital asset securitize in order to tok part of its flagship capital fund of $ 2.1 billion in the polygon network. In a further case, the central bank of Singapore, MAS, PROFELECT GUARDIAN presented a pilot program for the tokenization of bonds and insoles that can be used in numerous defi strategies.
also a Huntingdon Valley Bank Partner Whereupon the protocol connected its native stablecoin dai with traditional finances. This was the first commercial loan participation between a financial institution regulated by the USA and a decentralized asset.
The inclusion of real assets in the DEFI industry increases the available liquidity and at the same time offers a new investment class for defi participants, which you can use for searches. One of the most important catalysts fueling this trend is the lower exposure of the investment return to crypto volatility and the care of companies and customers that are not crypto-native. Other advantages are lower minimum investments, improved transparency and safety of blockchain, improved access through partial ownership, etc.
According to Matt Henderson, the Chief Strategy Officer from Aurora Labs, there seem to be no limits to the areas in which token can penetrate. When speaking with cryptopotato , the managing director also addressed partial property, which in his opinion is a key factor for promoting assets in the real world.
"Partial ownership is the key proposal for the promotion of real-world assets. From now on there seem to be no limits to the areas in which token can get tokenable.
dealing with daos
decentralized autonomous organizations (DAOS) are also on the rise because the world is preparing for Web3. The main goal is to democratize the management structure through the abolition of central hierarchies. As such, these organizations support the idea of collective governance through on-chain voting. The focus is still on increasing the flexibility of investors and the variety of financed ideas.
But Daos are not flawless. Be it data protection problems or equalizations, these organizations have their own restrictions. Treasury Management is another sensitive topic.
In this context, Henderson said that "real companies have been looking for the ideal ways to organize and govern themselves, and none has committed itself to the rule of the mob." According to the executive, the closest attempt was "Holacracy", a flat administrative structure that distributes the authority to self-organizing groups instead of the top-down authority. However, Henderson said none of them "really worked".He believes that there is still a "long way" when it comes to having Daos work effectively. The best approach that he has seen so far, "would be analogous to a corporate board of directors, where the token owners regularly vote on a governance council (the" board "), which then selects and monitors the people who run daily business."
Defi insurance protocols
Despite the immense development of defi, calls after regulation and compliance become louder than ever. This is because the young sector has become a very attractive place for illegal activities and illegal fraud.
According to reports, defi services were used by threat players for criminal activities related to North Korea. Last year alone, over $ 3 billion was lost due to Defi Exploits. One can certainly say that security is a fundamental bottleneck for the introduction and expansion of space. However,Henderson from Aurora does not believe that there is a "close coupling between defi hacks and regulations".
"Many of the regulatory news that we saw last year revolved around the protection of consumers from tradfi companies that work in the crypto room."
The manager said that the security of the defi protocol would always be a challenge and a cat-and-mouse game. With more capital infusion, Henderson added that the defi protocols continue to become more susceptible to goals. This is where the Defi Insurance Protocols come into play, which help to protect the victims from losses and to help them regain lost funds.
"Protocols such as Insurace offer secure web3 insurance solutions on Aurora and shooters from catastrophic events. It has paid over $ 11.8 million in insurance claims in 20 chains that protect more than 140 minutes
A recently published report by the decentralized financial analysis platform OpenCover showed that Defi insurance companies alone compensated more than $ 34 million in claims for damages in 2022. The data showed that $ 22.5 million were paid during the collapse of Terra, followed by $ 4.7 million after the fall of FTX.
compliance in Defi with ZK
zero-knowledge-evidence was recently cited in the 40-page report by the US Ministry of Finance. Such recognition was welcomed by the crypto community because the technology has proven its suitability in areas such as unencrypted messaging, data storage and security, file control systems of the next generation, integration into private blockchains and more.
ZK technology is useful for data protection-relevant applications such as cryptocurrency transactions by enabling users to do business without revealing their identity or details. This is done by creating a cryptographic evidence.
For example,aurora Labs observes exactly how this technology can be used for the Rainbow Bridge. However, the main counterpoint is the lack of acceptance. In addition, there are very few people in the industry who can address certain problems associated with it.
"The main problem was observed during an exploit that affected the entire industry, and relatively a few people with a mathematical background and skills to tackle the problem is one of the areas where I am selectively careful, although there are worthwhile applications, including functions to protect privacy, security, cost efficiency and more."
But it is also important to understand that ZK technology is not a new concept and has existed beyond finances for decades. The takeover of this mathematical technology was proposed last year to support the humanitarian efforts of the Danish Red Cross in Somalia.
The conclusion is that Defi protocols have to implement a rigorous compliance approach, since experts believe that ZK-Proofs enable security against developing threats. On the other hand, the regulatory authorities should refrain from going too far. Otherwise a lot could go wrong.
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