Schlagwortarchiv für: DeFi

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Decentralized Finance (DeFi) Policy-Maker Toolkit

WHITE PAPER – June 2021

In collaboration with the Wharton Blockchain and Digital Asset Project

Foreword

Decentralized finance (DeFi) is an emerging and rapidly evolving area in the blockchain environment. Although examples of DeFi have existed for several years, there was a sudden upsurge of activity in 2020. In one year, the value of digital assets1 locked in DeFi smart contracts grew by a factor of 18, from $670 million to $13 billion; the number of associated user wallets grew by a factor of 11, from 100,000 to 1.2 million; and the number of DeFirelated applications grew from 8 to more than 200.2 This growth in turn has stimulated interest from both the private and public sectors.
DeFi aims to reconstruct and reimagine financial services on the foundations of distributed ledger technology, digital assets and smart contracts. As such, DeFi is a noteworthy sector of financial technology (fintech) activity.

However, serious questions remain:

– What, if any, are the distinctive aspects of DeFi? What distinguishes a DeFi service from a similar service based on traditional finance?

– What are the opportunities and potential benefits of DeFi? To whom will these benefits accrue – and who might be excluded or left behind?

– What are the risks – individual, organizational and systemic – of using DeFi? How do these risks apply to clients, markets, counterparties and beyond?

– Can DeFi become a significant alternative to traditional financial services? If so, will there be points of integration? If not, what if anything will DeFi represent in the market?

– What novel legal and policy questions does DeFi raise? How should policy-makers approach DeFi? What options exist for addressing these questions?

Notably, the DeFi space is relatively nascent and rapidly evolving, so the full scope of risks and potential for innovation remain to be seen – and there are unique challenges in regulating and creating policies for such a new and changing area.
This report does not recommend any one single approach; instead, it is designed as a set of tools that can be applied in light of the legal contexts and policy positions of each jurisdiction, which may vary.
In the appendices we offer a series of worksheets and other tools to assist with the evaluation of DeFi activities. A companion piece, DeFi Beyond the Hype, provides additional detail about the major DeFi service categories.
Our hope is that this resource will enable regulators and policy-makers to develop thoughtful approaches to DeFi, while helping industry participants understand and appreciate public-sector concerns.
It is the result of an international collaboration among academics, legal practitioners, DeFi entrepreneurs, technologists and regulatory experts. It provides a solid foundation for understanding the major factors that should drive policy-making decisions.

Download the full report:

http://www3.weforum.org/docs/WEF_DeFi_Policy_Maker_Toolkit_2021.pdf

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DeFi Beyond the Hype

The Emerging World of Decentralized Finance

Produced by the Wharton Blockchain and Digital Asset Project, in collaboration with the World Economic Forum

Introduction

Decentralized Finance (DeFi) is a developing area at the intersection of blockchain, digital assets, and financial services. DeFi protocols seek to disintermediate finance through both familiar and new service arrangements. The market experienced explosive growth beginning in 2020. According to tracking service DeFi Pulse, the value of digital assets1 locked into DeFi services grew from less than $1 billion in 2019 to over $15 billion at the end of 2020, and over $80 billion in May 2021.2 Yet DeFi is still early in its maturation.

The goal of this report is to demystify DeFi. It describes the basic attributes of DeFi services, the structure of the DeFi ecosystem, and emerging developments. A forthcoming Decentralized Finance Policy-Maker Toolkit will offer guidance on risks and policy approaches for governments navigating this new space.
DeFi is a general term covering a variety of activities and business relationships. We identify six major DeFi service categories—stablecoins, exchanges, credit, derivatives, insurance, and asset management—as well as auxiliary services such as wallets and oracles. While traditional finance relies on intermediaries to manage and process financial services, DeFi operates in a decentralized environment—public, permissionless blockchains.

Services are generally encoded in open-source software protocols and smart contracts. Like blockchain technology more generally, DeFi has an enthusiastic base of evangelists, who promote its potential for efficiency, transparency, innovation, and financial inclusion. It also has its critics, risks, and unknowns. There have already been significant examples of fraud, attacks, governance controversies, and other failures in the DeFi world. At this early stage, it is essential for industry and governments alike to develop a well-informed and nuanced understanding of the opportunities, risks, and challenges.

What is DeFi?

THE FUNDAMENTALS

DeFi is a general term for decentralized applications (Dapps) providing financial services on a blockchain settlement layer, including payments, lending, trading, investments, insurance, and asset management. DeFi services typically operate without centralized intermediaries or institutions, and use open protocols that allow services to be programmatically combined in flexible ways.

Historically, intermediaries have played essential roles within financial markets, serving as agents and brokers of trust, liquidity, settlement, and security. The range and value of intermediaries has grown over time to meet the needs of an increasingly complex financial system. Since the 2008 Global Financial Crisis, there has been increased attention on inefficiencies, structural inequalities, and hidden risks of the intermediated financial system. More recently, controversies such as the GameStop short squeeze, in which retail investors were blocked from trading during a period of volatility, cast a spotlight on other shortcomings of legacy financial infrastructure:

slow settlement cycles, inefficient price discovery, liquidity challenges, and the lack of assurance around underlying assets.

DeFi aims to address some of these challenges—though many still apply to the DeFi ecosystem in its current state.

DeFi leverages blockchain technology to facilitate alternatives to traditional service providers and market structures. It offers the potential for innovation and creation of new services for improving efficiency of financial markets—building upon work being done in financial technology (fintech) and blockchain technology more broadly. Whether it achieves this promise remains to be seen…

Download the full report:

https://wifpr.wharton.upenn.edu/wp-content/uploads/2021/05/DeFi-Beyond-the-Hype.pdf

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Placeholder VC – Systemic Risk Mitigation in DeFi

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Source: https://www.placeholder.vc/blog/2021/3/10/systemic-risk-mitigation-in-defi
March 11, 2021

Introduction

Speculation and risk-taking are essential features of all monetary economies and both are closely tied to the financial sector. History has shown that without appropriate rules, safeguards, and behavioral norms, financial markets become more prone to fraud, pro-cyclical excess, and crises. Occasionally, these crises take systemic proportions, threatening the stability of the economic system as a whole. In a worst case scenario, a financial meltdown can lead to an economic depression, extreme social divisions, or even violent political conflict.

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Build an Open Investment Bank Using OpenLaw

Today OpenLaw is releasing its second vertical OpenLaw Finance. With OpenLaw Finance creating legally compliant tokenized securities, fixed income products, tokenized real estate, and smart derivatives can be as easy as filling out a simple form. The future of decentralized finance is coming into focus powered by OpenLaw.


Ethereum holds out the potential to serve as the commercial operating system for the globe. Launched only five years ago, Ethereum is rapidly emerging as the spine for a streamlined financial system where existing financial products can be structured and administered more efficiently. Despite the downturn in prices, Ethereum’s growth has accelerated over the past two years. We’ve seen the birth of stable coins, like DAI, and the threads of more advanced financial products like those provided by Dharma and Compound. Ethereum-based trading platforms are beginning to mature, like 0x and Uniswap, creating composable financial legal blocks that enable assets to flow more seamlessly between parties. And decentralized oracles like Chainlink are moving to mainnet, holding out the hope of inputting real-time data into commercial relationships and creating new, more efficient means of commercial transactions.
Traditional finance, of course, has noticed. An increasing number of banks and other “fintech” startups are exploring the use of blockchain technology through the issuance of their own stablecoins and a host of pilot programs ranging from J.P. Morgan’s stablecoin to SWIFT’s instant GPI payments.
The blockchain-world and traditional finance are on a collision course with new tools and approaches rapidly painting a picture of what a more democratized and streamlined financial system could look like — one that is more efficient, transparent, and resilient. Weiterlesen

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