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DeFi needs more tangible assets on-chain to see a successful future

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DeFi needs more tangible assets on-chain to see a successful future

In a business school lecture hall at the Massachusetts Institute of Technology (MIT), a senior executive for Safaricom gave a prediction of decentralized finance and the future of commerce to a room of keen but confused MBA students. “You will be able to buy your first home on WhatsApp! Smart contracts on the Ethereum blockchain will take care of everything and you won’t need a broker,” he said with conviction, pointing to a slide.

“How will the house’s title change hands? What about the funds? Can the blockchain do escrow? What role for lawyers? How could we possibly buy something worth a million dollars with the click of a button?” the class wondered.

Students in April 2017 — who hadn’t yet seen Bitcoin (BTC) crest above $20,000 — had little reason to believe that blockchain would change the world. They were intrigued anyway. Although these conversations took place back in 2017, the same discussions could still sound captivating to many today. That’s because there are still many individuals and businesses who have yet to experience the impact of DeFi and real-world assets (RWAs).

Looking to our present in 2021, after the excitement of the DeFi summer and the setback of Bitcoin’s recent sell-off, we are at another crossroads. DeFi total value locked is now above $150 billion, MakerDAO has now officially become a DAO, FTX has raised the largest private round in crypto, and a DeFi future seems more plausible than ever.

This would be a world where credit, payments and investing all take place on-chain in a decentralized system, without as great a role for financial institutions. In the spirit of blockchain, and the broader fintech movement, DeFi projects aim to offer innovative financial products with lower fees, fewer intermediaries and higher transparency.

While DeFi has made impressive strides and breakthroughs since 2017, the liquidity in the DeFi ecosystem represents only a fraction of what is needed for decentralized finance to go mainstream by bringing more real-world assets on-chain.

Related: The future of DeFi is spread across multiple blockchains

The question arises for this entire sector: How do we go from early customer traction to product-market fit? So that when a version of the 2017 conversation between the Safaricom executive and MIT students happens today, it won’t sound like something out of the ordinary and more like part of most people’s everyday life. Here are some key deterministic factors for DeFi to gain mainstream adoption.

A comprehensive data and analytic infrastructure

With a declining role for centralized financial institutions, the “guarantors” of the financial system, we are forced to rethink not only how data moves but also how it is controlled and custodied. Without banks, how will a blockchain manage one’s identity? How will we evaluate risk? How will we price assets if we can’t call on centralized datasets for valuations?

Oracles have successfully played a critical role in bridging the gap between real-world data and smart contracts. But how about the data analysis tools such as FICO and Bloomberg that are powering the financial markets? We haven’t seen any oracles that are providing a viable solution to that. The broader DeFi space needs a crowdsource-enabled solution to price historically opaque and illiquid assets so that we can bring these private assets into DeFi effectively and efficiently.

Collectively, this will accelerate the movement of real-world assets on-chain, including real estate and collectibles, and has the power to change the world. Still, we raise new questions: What is the right way to govern data in a decentralized universe, and how will laws apply in technological contexts lawmakers never considered? This question has plagued the social media industry and its reputation for the last several years. How can DeFi avoid similar pitfalls?

A DeFi ecosystem replicates full CeFi functionalities

China is the global leader in fintech innovation, with nearly 90% digital wallet penetration and 62 billion unique transactions made in 2020. This textbook definition of mass adoption is made possible by providing a complete banking experience for the wallet holders. Through Alibaba Group’s Alipay, China’s leading digital wallet, users can purchase insurance policies, invest in mutual funds, exchange currencies, pay bills and donate to charities. Alipay exemplifies a digital revolution built to allow people to continue the same routines but easier, faster and cheaper.

Similarly, the cryptographic innovations must be built upon a DeFi ecosystem that provides the same secured insurance, lending services and trusted currencies. While many DeFi veterans have already implemented RWA-based strategies, the lack of sufficient RWA on-chain severely hinders the ecosystem development.

Related: Decentralized and centralized finance need to collaborate

After having a proper pricing infrastructure, DeFi needs to offer a solution to onboard real-world assets on-chain at scale. The unique value proposition lies within their financing licenses. The space needs a protocol interfacing with traditional corporate borrowers globally to originate RWA at scale and bridge the funding demand in CeFi with liquidity in DeFi. This can be done by offering a frictionless lending process for real-world borrowers, eliminating the need for “crypto education” by allowing the borrowing and repayment to be made in fiat. On top of that, an RWA-based yield strategy has to be created, allowing DeFi and CeFi lenders to invest in income-generating real-world assets while maintaining exposure in crypto assets.

RWA lending will undoubtedly unlock numerous opportunities for DeFi innovations to replicate most, if not all, of the CeFi functionalities. With more projects eyeing RWA, the ecosystem will expand quickly.

An effective and efficient decentralized governance

When we talk about scaling decentralized finance and bringing more RWA on-chain, decentralized governance is an inevitable part. An effective decentralized governance solution could benefit DeFi in many ways:

  • Easier scaling. Organizations interested in scaling up can facilitate the process easier if they’re decentralized.
  • Faster decision-making. This largely depends on the governance form of that organization. Of course, some can be faster than others, but compared against centralized organizations where there is a wait for decisions to be approved, decentralized organizations have a clear advantage.
  • Transparency. All types of transactions are traceable and auditable by all permitted parties, resulting in much higher transparency and fraud prevention.

Related: Decentralized parties: The future of on-chain governance

A global standard for regulatory compliance

In an unpredictable market for regulatory enforcement actions, DeFi cannot afford to fly blind. Just last month, the U.S. Securities and Exchange Commission chairman Gary Gensler said:

“These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.”

The DeFi industry needs a strategy for compliance. The views that decentralization makes it difficult to hold any single entity accountable, or worse, that decentralization makes compliance unnecessary, have already and will continue to draw the scorn of regulators.

Related: FATF draft guidance targets DeFi with compliance

How can platforms reasonably fit their businesses within existing legal structures of the Bank Secrecy Act and Know Your Customer (KYC)/Anti-Money Laundering, or at least help to change the paradigm? Libra’s misadventures, though hardly DeFi, represent a missed opportunity to innovate without insulting our authorities. In its current state, the DeFi industry risks insulting regulators and advancing the theory put forth by antagonists like Elizabeth Warren that the cryptocurrency industry only truly exists to promote illicit financial practices, such as money laundering and drug and human trafficking. While the answer is not abundantly clear now as to how DeFi will integrate compliance into the technology stack, it seems clear that it must. Mainstream institutions and the general public will require better KYC standards before adopting.

Conclusion

There are protocols that have the potential to improve and secure the global financial system by introducing much-needed transparency and neutrality into a stable currency. Some stablecoin platforms have allowed anyone to generate their peer-to-peer cash in a trustless and decentralized environment.

But if we truly want everyone to realize the dream of accessible financial services for all people, then those of us in the DeFi space must leave our comfort zones. Our goal is for RWA to incorporate billions of dollars in non-digitally native. We must cross the chasm and step outside collateral into the DeFi ecosystem, but we can’t do it alone. We need to work together with a whole set of companies and projects that have a clear goal while encouraging competition from the legacy financial sector to benefit what is most important — the users.

This article was co-authored by David Lighton, Kevin Tseng and Mariano Di Pietrantonio.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

David Lighton is the co-founder of Lithium Finance. He’s an entrepreneur passionate about inclusive financial innovation and also the founder of SendFriend, a fintech startup using blockchain for international money transfers. David also served as special assistant on the Haiti desk at the World Bank and co-authored the Haiti National Financial Inclusion Strategy. David holds an MBA from the MIT Sloan School of Management and an M.A. and B.A. with honors from Johns Hopkins University.

Kevin Tseng is the founder of Naos Finance. Prior to Naos, Kevin was a serial entrepreneur and an investor. Kevin founded and exited three tech startups in China and Southeast Asia and led strategic investment at The Walt Disney Company and Alibaba Group.

Mariano Di Pietrantonio is the head of strategy for MakerGrowth, a MakerDAO Core Unit. He works primarily on the development and research of new use cases, including education, partnerships and communication activities. Mariano has 15 years of experience in product and marketing in industries such as pharma, banking and gaming, among others.

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BTC, ETH, XRP, ZEN, UNI, OMG, AXS — Technical Analysis Sept 28

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BTC, ETH, XRP, ZEN, UNI, OMG, AXS — Technical Analysis Sept 28

Bitcoin (BTC) was rejected by the $44,000 horizontal resistance area.

Ethereum (ETH) is following a descending resistance line and potentially trading inside a descending wedge.

XRP (XRP) is following a descending support line.

Horizen (ZEN) has broken down from an ascending support line.

Uniswap (UNI) has broken out from a descending wedge.

OMG Network (OMG) is following an ascending support line.

Axie Infinity (AXS) has broken out from a descending resistance line.

BTC

On Sept 27, BTC was rejected by the $44,000 resistance area and created a long upper wick (red icon). This is a bearish sign since the area had previously been acting as support, and the rejection now validates it as resistance.

Technical indicators in the daily time frame are bearish. Both the RSI and MACD are decreasing. The former is negative while the latter has just fallen below 50.

The next closest support area is found at $38,000.

ETH

ETH has been decreasing underneath a descending resistance line since Sept 3. Most recently, it was rejected by the line on Sept 16.

Due to the long lower wicks, the support line cannot be accurately determined. However, it’s possible that ETH is trading inside a descending wedge.

Despite the wedge normally being considered a bullish pattern, technical indicators are neutral. The RSI is right at the 50-line and the MACD is below 0, although it is increasing.

Therefore, the direction of the trend cannot be accurately determined at the current time.

XRP

XRP has been following a descending support line since Aug 17. So far, it has been validated multiple times, most recently on Sept 21. The final touch of the support line (green icon) also coincided with the 0.618 Fib retracement support level at $0.85.

Despite the fact that XRP is trading above a confluence of support levels, technical indicators are not bullish. The RSI is at the 50-line and the MACD is negative, even though it is moving upwards.

The closest support and resistance levels are found at $0.76 and $1.07 respectively.

ZEN

ZEN has been decreasing since Sept 15, after creating a double top pattern and a long upper wick. The pattern was also combined with a bearish divergence in the RSI.

Shortly after, it broke down from an ascending support line. The breakdown is supported by the MACD and RSI, which are both decreasing.

The closest support area is found at $53.

UNI

UNI has been decreasing since Sept 2. After the Sept 7 drop, it created a descending wedge, which led to a low of $17.73 on Sept 26.

However, UNI rebounded and broke out from the wedge. The breakout is supported by the increasing MACD and RSI.

The closest resistance area is found at $26.15, created by the 0.618 Fib retracement resistance levels.

If UNI is successful in moving above it, it may move toward new highs.

OMG

OMG has been following an ascending support line since July 20. However, since Sept 6, it has failed to break out above the $10.60 area, which is the 0.618 Fib retracement resistance level.

Despite the rejection, technical indicators are bullish. The RSI has generated a hidden bullish divergence and the MACD is positive.

Therefore, an eventual breakout would be likely. This could take OMG toward the $15.33 all-time high price.

AXS

AXS has been increasing since Sept 21 when it bounced at the $48.28 support area. The next day, it created a bullish engulfing candlestick and broke out from a descending resistance line.

Following this, it reclaimed the $63 horizontal area and validated it as support.

Both the MACD and RSI are increasing, supporting the continuation of the upward movement.

The next resistance area is found at the all-time highs of $94.50.

For BeInCrypto’s latest Bitcoin (BTC) analysis, click here.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Bitcoin (BTC) Fails to Move Above $44,000 Resistance

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Bitcoin (BTC) Fails to Move Above $44,000 Resistance

Bitcoin (BTC) attempted to move upwards on Sept 27 but was rejected by the $44,000 resistance area.

While BTC is still trading inside the upper portion of a descending parallel channel, the price action is lacking bullish signals.

BTC gets rejected

On Sept 27, BTC made an attempt at moving above the $44,000 area but was promptly rejected (red icon). The area had acted as support in August and the beginning of September but turned to resistance after the breakdown on Sept 20. The rejection created an upper wick and a bearish candlestick. 

Besides trading below resistance, technical indicators for BTC have turned bearish as both the RSI and MACD are decreasing. The MACD has just crossed into negative territory while the RSI is below 50. 

If BTC were to continue moving downwards, the next closest support area would be found at $38,000.

Current channel

The six-hour chart shows a descending parallel channel, which usually contains corrective structures.

Currently, BTC is trading inside its upper portion. Furthermore, it’s trading just above the 0.5 Fib retracement support level.  

Despite being above a confluence of support levels, technical indicators are bearish/undecided. The MACD is negative and has lost its strength while the RSI has just fallen below 50.

The two-hour chart shows that BTC is following an ascending support line and has made three higher lows since Sept 21. While this can be seen as a bullish structure, the price action is not bullish. 

The previous resistance area at $43,000 that was expected to act as support did not. On the contrary, BTC fell right through it. Furthermore, both the MACD and RSI have turned bearish.

While there is very strong support at $41,500, created by the 0.786 Fib retracement support level and the ascending support line, the price action does not seem bullish.

Wave count

The most likely wave count still indicates that the decrease from Sept 7 to Sept 21 was part of an A-B-C corrective structure, in which waves A:C had an exact 1:1 ratio. This is also supported by the presence of the descending parallel channel.

However, the movement since the low does not seem impulsive, casting some doubt on the possibility of this being the correct count.

Alternative counts could see the movement as a flat A-B-C corrective structure (upper image), or in the more bearish case a 1/2-/1-2 wave structure (lower image). 

At the current time, the correct count cannot be determined.

For BeInCrypto’s previous Bitcoin (BTC) analysis, click here.

Disclaimer

All the information contained on our website is published in good faith and for general information purposes only. Any action the reader takes upon the information found on our website is strictly at their own risk.

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Europe becomes largest crypto economy with over $1T in transactions — Chainalysis

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Europe becomes largest crypto economy with over $1T in transactions — Chainalysis

DeFi has become a major catalyst for Europe’s crypto economy. Large institutions have also upped their share of transactions significantly.

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Europe becomes largest crypto economy with over T in transactions — Chainalysis

The region of central, northern and western Europe, or CNWE, has emerged as the world’s most active cryptocurrency block, receiving over $1 trillion worth of digital assets over the past year, according to new research from blockchain analytics firm Chainalysis. 

The report, which was released Tuesday, found that the CNWE region accounted for 25% of global crypto activity between July 2020 and June 2021. The region witnessed a sharp uptick in transaction volume across all crypto sub-categories, especially decentralized finance, or DeFi.

Chainalysis describes crypto transactions as anything involving trade, investments and business dealings.

Europe has also become a hotbed for institutional investing, with transactions values in this category growing to $46.3 billion in June 2021 compared with just $1.4 billion in July 2020. Perhaps surprisingly, the United Kingdom is the single largest crypto economy in the region at $170 billion worth of transactions. Nearly half, or 49%, of the value was sent via DeFi protocols.

“The U.K.’s growth is driven mostly by growing institutional investment, based on the large-sized transfers driving most of its transaction volume,” Chainalysis senior content marketing manager Henry Updegrave told Cointelegraph. 

A secular bull market for Bitcoin (BTC), the growth of competing smart contract platforms and the arrival of decentralized finance all contributed to crypto’s massive rally during the study period. It comes as no surprise that CNWE’s crypto market activity peaked in May 2021 during the height of the bull market, which was one month removed from Bitcoin hitting $64,000.

Chainalysis’ data corroborates a growing body of evidence showing that large institutional investors have become a driving force within crypto. Wealth managers, family offices and other institutional players have poured billions of dollars into Bitcoin and Ether (ETH) investment products offered by Grayscale, CoinShares, 21Shares and others.

Related: Crypto asset manager Cobo raises $40M to launch DeFi-as-a-service

Beyond the advanced economies of Europe, Chainalysis research has documented the growing uptake of crypto in emerging markets. The Chainalylsis 2021 Global Crypto Adoption Index named Vietnam, India and Pakistan as the leading countries for adoption based on on-chain value received, retail transactions and peer-to-peer exchange trade volume.

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