How Can Decentralized Finance Survive the Current Crisis?

How Can Decentralized Finance Survive the Current Crisis?

Decentralized Finance (DeFi) has been in the spotlight lately, primarily because of the shocking collapse of the Terra ecosystem.  Its debacle cost tens of billions of dollars in a matter of days, creating violent shocks across the crypto market, and resulting in a loss of credibility among retail investors.  In 2021 DeFi provided investors with high rates of return, a too-good-to-miss opportunity. Now as Terra’s shock waves continue to bring down DeFi liquidity, investors are also considering their trust in crypto. One of the worst domino effects triggered by Terra came in the shape of Celsius, offering high-yielding interest accounts to 1.7 million users with $12 billion held. Now this crypto lending platform is currently rumored to be facing bankruptcy and has suspended user withdrawal requests to stabilize its operations.  To cap it all, the notable crypto hedge fund Three Arrows Capital is also facing an insolvency crisis. Clearly DeFi appears to be in trouble. But what has caused this current crisis, and why?

DeFi is an umbrella term for a set of financial activities that eliminate the need for intermediaries in traditional financial services. Loans, savings, remittances, insurance, and cryptocurrency transactions are all included. For example, some people will use DeFi to lend a friend $100 in Bitcoin, and as the lender they will earn interest on the loan without traditional intermediaries. As the FT explained DeFi is, “an umbrella term for a collection of crypto asset projects that aim to do away with a centralized intermediary — like a bank or an exchange — to provide financial services. They use DApps to execute common services like lending, savings accounts, and trading coins”. Before its collapse, Terra was considered a star product of DeFi, a payment network based on its TerraUSD stablecoin.

 

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A skeptical view of the DeFi. Source: @ChainLinkGod.eth

Terra’s high interest bearing Anchor protocol was also supposed to resist the market downturn and be a tool for high profits whether in the bull or bear market.  But as Terra collapsed and tens of billions of dollars evaporated, those hopes were dashed. As Elizabeth Lopatto, deputy editor with The Verge explained, “Kwon’s rise and fall was fairly rapid, even by cryptocurrency standards. Luna emerged as a bright spot in the markets in December and reached its peak valuation, a touch over $116, in April; Luna was worth more than $40 billion, all told. During that time, a lot of crypto, including Bitcoin and Ethereum, was sliding. Luna’s popularity was due to a lending program, Anchor, that promised annual percentage yields (APY) of almost 20 percent — obscenely high.”

Over the past ten days, Celsius has prevented all of its estimated 500,000 users from withdrawing their money because of “extreme market conditions”. with no word on when it will be available again. As much as $8 billion in deposits is frozen. If that wasn’t enough it was reported that a week after the withdrawal freeze Celsius warned its community of a rise in fake social media accounts claiming to be from Celsius. At the same time, it paused its Twitter Spaces and AMA’s to focus on its liquidity crisis. “As has been a priority since our company’s inception, we maintain an open dialogue with regulators and officials. We plan to continue working with regulators and officials regarding this pause and our company’s determination to find a resolution,” a June 20th Celsius blog post confirmed. However, the comments to the blog post further underline how this has severely dented user trust. “I wonder how this is in the interest of the community when you didn’t ask them if they’d like to pause all chain activities. Everything you’ve said so far is lies and you will know that when the functions resume, I’d rather be in meme coin hype with 50/50 chances than this,” being typical of the overwhelmingly critical set of responses.

Hong Kong-based crypto lender Babel Finance paused withdrawals and redemptions, citing “unusual liquidity pressures”, while Singapore-based crypto hedge fund Three Arrows failed to meet margin calls from lenders. On Monday, another Hong Kong-based crypto exchange Hoo announced a halt on transactions after customer withdrawals became so great that they risked exhausting the company’s available funds, reported the FT.

In our view, problems with protocols like Terra don’t lie in the details of any one platform.  Because the current crisis was the result of a faulty model, Terra’s debacle was also fed by the belief that nothing like what has happened in the traditional finance world would ever happen in the blockchain market.  But the fact is that when you purposely remove the intermediaries which come with the traditional financial model, you also remove the safeguards that traditional finance has worked so hard to build over the past few decades, and especially after the 2007-08 credit crunch.

As it stands, DeFi is already in trouble.  According to data from DeFi Llama, the TVL of most top DeFi blockchains has dropped by 30% or more in the past month.  At the beginning of April, the total TVL (total value locked) of all blockchains was over $170 billion, and that number is now down to around $60 billion, which is a 65% decrease from before Terra crashed. “Moreover, since December 2021, the top smart contract platform tokens have lost 70% in value against the U.S. dollar as well, sliding from $823 billion to today’s $245 billion,” reported Jamie Redman in Bitcoin.com.

Some in the industry believe this change in the DeFi market capitalization is a tough but necessary step, as it will significantly reduce the emergence of risky projects and allow the industry to stabilize. However, others believe that the decline in TVL highlights deeper problems in DeFi that are not simple to solve.  And these current issues could prompt lawmakers to act sooner rather than later to create a series of more robust regulatory frameworks. An obvious example in the US is the recently tabled Responsible Financial Innovation Act which while not explicitly mentioned DeFi does seek to establish agency oversight and regulations according to which assets are securities.

As Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) continue to fall in value despite the efforts of bulls to shore up their value, making the cryptocurrency market more uncertain, there are some smart moves investors can deploy to prepare for more market volatility.  If you have funds on a DeFi platform, make sure you fully understand how the platform works and how it generates any rewards.  If you have moved all of your funds to a high-interest rate DeFi protocol, then please proceed with caution and think carefully about the consequences of a platform freeze or even crash, as this will be critical to the safety of your funds.

“While it’s far from certain the DeFi sector in its current form will fail, it’s likely to have more trouble before its problems are over.  The domino effect after the Terra crash is gradually playing itself out, and it remains difficult to predict how far it will spread.  If more major projects and institutions collapse however, it will no doubt impact on the wider crypto market. Already we’ve seen signs of this with FTX helping BlockFi with a $250 million loan, and crypto broker Voyager Digital with an even larger loan of $485 million.” Anndy Lian, Best Selling Book Author and Chief Digital Advisor to Mongolian Productivity Organization commented.

While we are all worrying that DeFi is heading downwards, we also need to remember that DeFi is created to eliminate banks and financial institutions as central intermediaries in various financial transactions. There is no stopping for DeFi. New projects are popping up during these bearish times. DeFi projects are still trying to innovate and do more.

Pollen for example, has started their second token sale and hopes to have its first index product launched by the end of the year. Pollen Virtual, a trading simulator that lets you create and manage virtual portfolios, is now on mainnet to give every trader — DeFi degen or crypto newcomer alike — a level playing field to test and showcase their trading capabilities, building reputation and earning PLN token rewards. Pollen COO William Vandyk explains:‘’The signals generated from Pollen Virtual are being used to build an Index Factory, constructing indices that anyone can buy which will hold real assets, their composition determined by collective intelligence and free from any fund management or performance fees”

Ledger is one of the most popular hardware wallets on the market are partnering with Alkemi Earn. They are integrated into Ledger Live’s Discover section. This is the first time a DeFi lending and borrowing app is available to Ledger users.

“DeFi continues to grow as we speak. Nothing is going to stop us.”

 

 

Original Source: https://www.benzinga.com/22/07/27979603/how-can-decentralized-finance-survive-the-current-crisis

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Global Cloud Native & Opensource Summit: What you need to know in 2022 & Beyond

Global Cloud Native & Opensource Summit: What you need to know in 2022 & Beyond

Cloud Data Architecture: What You Need to Know in 2022 and Beyond (Big Data Analytics) talks about cloud solutions, cloud analytics, decentralized storage, data democratization, and more.

Key takeaway pointers:

1) Cloud analytics is often associated with artificial intelligence (AI), machine learning (ML), and deep learning (DL). And it is commonly used in industry applications

2) Democratize advanced technology by allowing your employees to work efficiently within their current knowledge. With innovative technology, there is a learning curve that developers/technicians need to go through to make the most of that technology.

3) Decentralized storage works on a reasonably democratic concept where data storage is not concentrated in the hands of a few tech giants. Instead, it is a peer-to-peer cloud storage solution with ordinary users or miners managing the system. Users rent out free disk space on their drives and are incentivized with tokens in return for their contribution.

4) Cloud adoption is a strategy used by enterprises to improve the scalability of Internet-based database capabilities while reducing cost and risk. To achieve this, businesses engage in the practice of cloud computing or using remote servers hosted on the Internet to store, manage, and process critical data.

5) Distributed cloud will support expanded service availability. By 2023, the leading cloud service providers will have a distributed ATM-like presence to serve a subset of their services for low-latency application requirements. Many cloud service providers are already investing in ways to make their services available closer to the users that need to access them.

Moderator:
Athiratt Jarnyaharn, Director of Data at BukuWarung

Panelist:
Nikhil Singh Kushwaha, Senior Data Architect at OCBC Bank
Bernard Tan, Director, Internal Audit at ISACA Singapore Chapter
Anndy Lian, Chief Digital Advisor at Mongolian Productivity Organization

Global Cloud Native & Open Source Summit 2022 focuses on a full range of cloud-native & open source technologies and is committed to defining the standard of the next generation of software engineering.

 

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Three Arrows, Voyager failures raise questions of who is next in crypto fall from grace

Three Arrows, Voyager failures raise questions of who is next in crypto fall from grace

The crypto winter is killing off companies that took on big risks when markets were booming. So is this the shakeout all financial markets go through?

Hedge fund Three Arrows Capital (3AC) looks like the biggest casualty of the crypto price collapse so far after filing for bankruptcy in the U.S., but according to blockchain business advisor Anndy Lian, the worst may be yet to come.

“It will have a snowball effect,” said Lian, who is a fund manager for blockchain investments at Passion Venture Capital Pte. in Singapore and advises Mongolia’s government on the industry.“[The impact] will not just be on 3AC, it will be on 3AC’s involvement as an investor or as a fund manager, then it will snowball down,” Lian said in an interview with Forkast.

That snowball has already hit crypto lending platform Voyager Digital Ltd., which filed for Chapter 11 bankruptcy on Wednesday in New York. Yet as more companies get swamped, some in the industry are calling it a necessary shakeout after the excesses of last year’s record-setting crypto price surge.

Voyager Digital had earlier halted or limited customer withdrawals, a move adopted by other lenders such as BlockFi. Crypto exchange Celsius was one of the first lending and staking platforms to halt withdrawals in early June, citing the common refrain “extreme market conditions.”

The collapse of Terra, which some argue helped trigger the bankruptcies now being filed, saw its Luna token fall from the ranks of a top 10 cryptocurrency with a market capitalization of almost US$30 billion to effectively zero in a matter of days.

Broken arrow

Any firm with significant exposure to the Terra project was hit hard by the collapse, including 3AC, which had a US$200 million investment in Luna Foundation Guard, the organization behind the Terra stablecoin, effectively wiped out when the project went south.

As 3AC sank into funding trouble, Voyager got hit after disclosing it had loaned over US$650 million in the USDC stablecoin and Bitcoin to 3AC, which it might not be getting back. BlockFi was among the lenders that foreclosed on roughly US$400 million in loans to 3AC.

Chapter 11 generally allows for a company to come up with a plan to pay off creditors and rebuild the business.

In the crypto boom times, many of these companies with lending and staking platforms were venturing into ever more risky areas for profits, Igneus Terrenus, head of communications at crypto exchange Bybit, said in an interview with Forkast.

“It’s almost a repeat or like a rhyming [with] what happened with the subprime mortgage crisis (which led to the Global Financial Crisis of 2008),” he said. “These firms just have to go further and deeper into more risky area because there is so much appetite.”

One of the world’s largest investment banks, Goldman Sachs is said to be looking to raise US$2 billion to buy distressed assets from Celsius, though Goldman hasn’t commented on the speculation.

Smaller pond

Companies native to the crypto industry are also looking for opportunities, with Bahamas-based crypto exchange FTX providing a US$400 million loan to BlockFi that includes an option to buy the troubled crypto lender.

Buying these firms out is a “smart move” Terrenus said, not only as a business opportunity, but in the case of FTX it creates a positive impression of a “savior” within the industry and grants confidence back to those firms and the market in general.

While the so-called contagion spreads in the crypto industry, it hasn’t reached broader traditional markets — this time around.

In its recent Financial Stability Report, the Bank of England highlighted how vulnerabilities in the crypto market, such as over-leveraging and breakdown of confidence in stablecoins, have contributed to the crypto crash.

The BoE recommended increased regulation of the industry to minimize the risk to broader markets as crypto adoption grows and become further entwined within traditional finance.

“It happens to everybody,” he said. “The fact that it’s happening to crypto now I don’t think should come as a surprise to people. The really important thing is what the crypto industry does now that it’s happened.”

Some of these firms will have to look at strengthening their balance sheets and internal controls, Sullivan added.

Many of these firms that are in trouble at the moment are not true DeFi (decentralized finance), but traditional centralized businesses just focused on cryptocurrency, he said.

Total value locked in these protocols has decreased in the past few months, but there have not been the collapses as has been seen in more centralized firms.

“Decentralized protocols actually performed exactly how they intended to and avoided the perils that the likes of BlockFi, Celsius and Voyager are experiencing,” Sullivan said.

Original Source: https://forkast.news/three-arrows-voyager-failure-crypto-fall-from-grace/

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