Category: DeFi

The DeFi developer running for US Congress

On By mehranmuslimiblogIn DeFi, Governments, RegulationsLeave a comment

There is a saying, ‘If you can’t beat them, join them!’, which is apparently what Matt West from Yearn.Finance, and formerly of  MakerDao, is trying to do. The Yearn developer is running for Congress in the USA and has said that he may need the help of the decentralized finance (DeFi) community to win.

West declared his candidacy for Oregon’s newly formed 6th U.S. House district on 12th October. He holds a Ph.D from the University of Texas in chemical engineering with a focus on renewable energy, and works at tech giant Intel. Yearn is his side gig. He taught himself Solidity and won the Yearn hackathon in 2020 and lately has been working with the team from no-loss lottery protocol PoolTogether on Yearn’s stablecoin yield farming strategies.

West is the “first DeFi-literate candidate to run for office, and is certainly the first DeFi developer to launch a campaign,” according to Coindesk.

DeFi and crypto needs inside support

The fact that West is running is good news for DeFi platforms, and has been prompted by “recent actions from legislators – such as an amendment to an infrastructure bill that nearly rendered running an Ethereum node legally impossible – are out of touch and destructive.”  However, West is not just focused on protecting crypto and DeFi, he’s also campaigning to improve his state of Oregon. He told Coindesk, “My state’s constantly on fire, there’s federal overreach, there’s outside protestors like the Proud Boys coming in to start riots – it came to a breaking point.”

Messari founder to run for US Senate

He’s not the only crypto advocate to consider entering politics. Messari founder Ryan Selkis is currently threatening a 2024 run for Senate because of recent regulatory scrutiny. He tweeted in September: “If you’re wondering when I actually decided to run for Senate, it was when these fuckers came to my event, didn’t buy a ticket, and served one of the speakers a subpoena. Enough talk. More war on our out of control regulatory state.” Those who didn’t buy a ticket were from regulatory organizations, in case you’re wondering.

West to tackle crypto regulation and wider political issues

But West’s decision is more based on a broader political landscape. He says his decision to run came after he saw the crackdown on the Black Lives Matter protests. He pointed out that “individuals contributing to the crypto technology sport a variety of ideological stripes. “This isn’t a vanity project for me. I want to make a difference, and if I can’t do it like this I’ll find another way,” he said.

Now that he’s declared, however, he says he needs the community’s support and even postponed announcing his run on Twitter until his campaign and BitPay managed to overcome the legal hurdles presented by crypto donations.

He wants to be the first DeFi developer in Congress, and asks the community to help him achieve that by donating through BitPay.

He told Coindesk, “It was a big deal for me to accept crypto donations from the start of the campaign. There are a few folks who run as crypto-friendly and take donations, but as someone who is coming directly from the crypto community as a developer and contributor it wasn’t just a marketing gimmick,” he said. “I wanted to show to the crypto community that they matter to me.”

DeFi poses a challenge for regulators

On By mehranmuslimiblogIn DeFi, Digital Innovation, RegulationsLeave a comment

DeFi protocols are for trading or lending crypto tokens and derivatives. They exist across a throng of validating and coordinating nodes, rather than as a single portal run by an incorporated legal entity. Furthermore, they exist without the formal leadership that regulators would normally interact. 

This lack of an identifiable leadership, plus the fact that the systems are designed without any requirement for users to reveal their identities, poses a challenge for regulators. They feel more comfortable with entities like Coinbase and Kraken, because at least they have comprehensive ‘know your customer’ (KYC) processes.

Regulators see DeFi as “a potential vector for all three of the key risks that financial regulators are tasked with controlling,”

David Z Morris writes. These are basically criminal activities, such as money laundering, tax evasion and terrorist financing, as well as fraud. Their biggest fear though is systemic risk. As Morris says, “DeFi and crypto still probably aren’t large or influential enough to trigger broader financial contagion in the event of a major market collapse or system failure, but you no longer have to engage in wild speculation to foresee that level of influence in the future.”

Regulators traditionally rely on the people managing trading services to control these risks by monitoring their customers and suspicious activity on their platforms, but this simply doesn’t exist with DeFi, which is much harder to regulate than crypto. Katherine Kirkpatrick, co-chair of the financial services practice at King & Spalding said in regard to this, “The ultimate question, beyond how to regulate, is how do you enforce the rules? How do you make someone accountable for breaking the rules? It doesn’t make sense to regulate if you have no enforcement mechanism.”

Don’t stifle DeFi

On the other side of the argument, “premature or misguided” regulations could stifle DeFi innovation and growth. But despite the risk of misguided overreach, there are good reasons to want a regulatory framework for DeFi. It would for a start, “make the fundamental advantages of the technology accessible to many more participants,” as Morris suggests, including making it more appealing to public companies and regulated institutions. At the moment they aren’t participating in DeFi because, “using DeFi in its current state could expose banks like JPMorgan to money laundering or fraud risk,” says Michael Shaulov, CEO and cofounder of Fireblocks, a DeFi custody and infrastructure provider.

The future DeFi landscape

There is little doubt that regulators will pursue DeFi if they find it has become a “powerful entity floating beyond their oversight.” Morris warns, “The modern state’s monopoly on violence as the endpoint of law enforcement will likely find some way to control your access to protocols living in the cloud.” Still, there will always be jurisdictions without strict regulations, where DeFi users who take sufficient privacy precautions will continue to take the risk of using them. It may also be the case that DeFi protocols will become testing grounds for new forms of digital statelessness. However, if we want DeFi to have a role in improving the financial system, there will have to be some compromises made with the regulators.

DeFi will disrupt banks

On By mehranmuslimiblogIn Banks, DeFiLeave a comment

Mark Cuban, the billionaire investor who is bullish on cryptocurrency and blockchain, has been telling CNBC that DeFi apps will challenge the traditional banks. Moreover, he believes that if banks weren’t so slow to embrace change, then they wouldn’t be facing this issue.

He particularly enthusiastic about the lending and borrowing aspects of DeFI. He said, “It’s a hassle to borrow money from a bank, and the foundational DeFi benefit is that it simplifies borrowing for personal purposes.” It also “allows anyone with funds to be a lender as well,” which is another plus.

As many of you will know, DeFi applications aim to recreate the traditional financial system and make it more accessible to a wider customer base. They are cryptocurrency based and the majority run on the Ethereum blockchain. Through DeFi lending, users can lend their cryptocurrency, just as a traditional bank does fiat currency, the difference being that the person lending the crypto earns interest on it.

In the traditional banking world, when a bank makes a loan, it is using the liquidity available from all the accounts it manages, yet none of the liquidity providers reap any rewards, only the bank does. DeFi changes that.

Furthermore, with DeFi, the barrier to entry is low for the borrower. The opposite is true for traditional banks. As CNBC says, “In most cases, the only requirement to take out a DeFi loan is the ability to provide collateral with other crypto assets.”

Cuban said, ″[B]usinesses, decentralized or otherwise, tend to benefit when they offer customers the path of least resistance to get what they want and/or need.” He added an important point: “DeFi is not monolithic. It’s competitive. It will evolve to meet customer needs.” Banks, it appears, are not doing that.

And yet they could have. On this subject, Cuban commented, “Banks could have simplified/automated to the point that DeFi wasn’t needed. They didn’t. They are so stuck in legacy [operations] they are disrupted by simple fintech.” 

Although banks are averse to change, DeFi will not wipe them from the face of the earth, but DeFi applications will still disrupt the traditional space.

Of course there is a downside with DeFI. For example, when you use a DeFi app, there’s no regulations or insurance in place, and “due to the volatile nature of cryptocurrency, investors would need to be comfortable with large swings in price.”

Looking ahead, Cuban predicts the “big players” in DeFi will “welcome regulation” since it will “allow the industry to grow and still have a Wild West aspect,” he said.

The rising demand for altcoins and DeFi

On By mehranmuslimiblogIn Altcoins, cardano, DeFiLeave a comment

One of the effects that DeFi had had on the cryptocurrency market is to increase investor interest in altcoins, or as some are calling them, “next-gen tokens”.  As the sector matures, and as crypto buyers understand more about the market, there is not so much a movement away from Bitcoin, as a growing belief in the altcoins.

Altcoins have finally emerged as an important element of the market at large. According to Cointelegraph, “ quick look at data available on Google Trends shows us that searches related to the term “Ethereum killer” have been soaring over the past 90 days,” indicating a growing interest in altcoins, especially those that support DeFi functions and smart contracts.

Examples of the more sought after altcoins are Cardano (ADA), Solana (SOL), Polkadot (DOT) and Terra (Luna). Solana had a particularly good run recently, with it managing to withstand a substantial market sell-off. In more recent days, Solana experience a 17-hour outage, which the network attributed to a denial-of-service attack carried out by bots. Its price went bearish since posting an all-time high of $213 on 9th September, but SOL had pulled back by 39% to sit at $128.87 on 22nd September. Cardano has also been able to record substantial profits, posting numbers of +70% and +1,200% over the last 90 and 180 days, respectively. Obviously nearly all cryptos have taken a knock this week, but the YTD numbers still look great for those who have owned any of these altocins for a while.

Antoni Trenchev, managing partner and co-founder of lending platform Nexo, believes there is a growing institutional demand for coins such as SOL and LUNA. The evidence to back this up is there: both coins have been able to make their way into the list of top 15 cryptocurrencies by total market capitalization.  Trenchev told Cointelegraph:

“This is a reflection of companies going deeper into crypto. Over the first two months of 2021, major institutions like BlackRock, Square and MicroStrategy were only just dipping their toes into Bitcoin. Now they’ve tasted its benefits and are looking to harness the untapped potential of up-and-coming blockchains and DeFi coins that could yield higher returns.”

He also suggested that while the crypto market may currently be in the midst of an alt-season, there is something different this time round, and that is the fact that there is more stability in the price of Bitcoin and Ethereum. As Cointelegraph points out, institutional traders flocked to SOL as demand for BTC and ETH appeared to plateau. As a result, at the beginning of September, “SOL-centric investment products represented a whopping 86.6% of the total weekly inflows into the crypto investment market.”

Furthermore, SOL’s combined investment products witnessed inflows in excess of $49.4 million between 6-10 Setember, and SOL enjoyed a 275% week-over-week increase in its value. And for the fourth consecutive week, demand for different altcoins has quite easily exceeded that of BTC products.

Kadan Stadelmann, chief technical officer of end-to-end blockchain infrastructure solutions provider Komodo, commented that rising demand for undiscovered projects is nothing new for the crypto market. However, what separates the present from previous cycles is the sheer amount of capital flowing in from institutions. 

Stadelmann had another interesting point to make: “Hundreds of DeFi projects are flying under the radar. Many of these projects have solid technology and can gain upward price momentum once institutions recognize their potential.” That’s good news for fintechs using DeFi!