DeFi
Regulators should embrace decentralized finance
Disclosure: The views and opinions expressed herein belong solely to the author and do not represent the views and opinions of crypto.news editorial.
Currently, the global financial system operates under a veil of secrecy. Global banks are currently undergoing stress tests to determine whether they can withstand large and sudden market downturns. But in some cases, regulators only require that these exercises take place once every two years – and the results can be unacceptably opaque.
It’s only been 16 years Lehman brothers spectacularly, filed for bankruptcy in what was the world’s largest business collapse. Millions of subprime mortgages had led to an unstable financial system and a deep, punishing recession when the bubble burst.
Some lessons were learned at the time. Supervision of big banks has increased and more aggressive affordability checks for home loans have been imposed. Yet despite stricter laws, closer monitoring and more rigorous stress testing, history continues to repeat itself.
Last year, another crisis occurred: that of the Bank for International Settlements. describing it is the “most significant system-wide banking stress” since 2008. Silicon Valley Bank, Signature and First Republic all experienced high-profile bankruptcies, while Credit Suisse suffered a humiliating bailout and a takeover by its rival UBS.
In the span of 11 days, four banks with a staggering $900 billion in assets were closed, creating a contagion effect and a crisis of confidence among consumers. The Federal Reserve’s aggressive rate hikes exposed inadequate risk management procedures at these companies, as losses on government bonds led to large deposit outflows that dealt a fatal blow to their liquidity.
The fact that all of this can happen so quickly painfully reveals the flaws that exist in stress testing. Regulators only have a glimpse of the financial health of the banks that billions of people rely on every day – and when things go wrong, they have to play catch-up.
Worse still, insufficient levels of transparency coincide with an increasingly uncertain economic context. Federal Reserve Chairman Jerome Powell once again admitted that inflation in the United States is taking longer than expected to subside – and that interest rate cuts may not come as quickly as hoped. The increased cost of borrowing is provoking mortgage defaults will increase. Widespread problems in the Chinese real estate market have also casting a dark shadow over the world’s second largest economy, with effects that could be felt elsewhere. Meanwhile, the International Monetary Fund has warned Ongoing conflicts in Ukraine and the Middle East could compromise growth prospects in the years to come.
Taken together, one thing becomes clear: It has never been more important to conduct regular, thorough stress testing to reveal potential vulnerabilities in the financial system, but current methods fall far short of what is required. Decentralized finance offers an attractive alternative and should be adopted urgently by regulators.
Lifting the veil of secrecy
Compared to the smoke and mirrors of the world of centralized finance, which means that significant risks to the health of an economy are only detected when it is too late, defi offers full, real-time transparency.
Defi protocols are autonomous ecosystems governed by smart contracts visible to everyone. They are powered by lines of code that dictate the rules of transactions, eliminating the risks of human error and greed. An open source environment means that anyone can access and examine these smart contracts, making it possible to identify potential problems and take action quickly. This is in the interest of all parties involved: regulators who struggle to achieve stability, businesses who want to avoid costly and reputation-damaging incidents, and consumers who want absolute guarantees that their savings are safe.
So… what does this mean in practice? Well, this ensures that the protocols can be constantly monitored. Through online simulations, experts can examine how a platform’s liquidity and health are affected by a multitude of factors, including changes in interest rates, mass withdrawals, or a sudden drop in asset prices. This provides instant feedback on potential weak points, meaning preventative measures can be put in place. Never before have regulators been able to access such a wealth of data so quickly and verify the financial fragility or resilience of an entire ecosystem with each transaction.
Promote innovation and competition
All of this goes beyond helping regulators meet high standards. Defi also ushers in a new financial era: that of inclusion. Anyone can participate and innovate in the many protocols that exist today and see where their entrepreneurial spirit takes them. While traditional companies have proprietary algorithms and complex structures that create barriers to entry, open protocols foster competition and prevent the formation of powerful incumbents.
This is already having concrete consequences: banks rush to increase the cost of borrowing when interest rates rise, but are slow to reward savers. In Australia, banks have been accused “profit-driven” pricing because there are few competitors in the market. In Belgium, regulators have compared with of the financial sector to an “oligopoly” where competition is suppressed by the big banks. And according to a recent poll, two-thirds of Irish adults said they believe that there is a lack of competition within the banking sector and that it is difficult to turn to other providers.
It’s time to change. By adopting Defi’s transparency and open architecture, regulators can gain a more holistic view of the financial landscape. Real-time monitoring, combined with a decentralized structure, offers the potential for a more resilient and inclusive financial system. Defi’s promise of interoperability, where different protocols interact seamlessly, further fosters innovation and paves the way for a dynamic ecosystem.
The days of opaque financial institutions and inadequate stress testing are over. Defi presents an opportunity for a more transparent, secure and dynamic financial future, and many existing protocols are keen to cooperate with regulators. PwC recently said“There is no investment without trust,” and compliance can really add value to a project and encourage adoption.
The challenge’s potential to revolutionize financial systems is undeniable. Its core principle – radical transparency – offers a powerful tool to prevent future financial crises.. By openly recording all transactions on a public ledger, Defi eliminates the opaque practices that fueled past collapses. Regulators, instead of fearing disruption, should recognize the challenge’s potential as an early warning system, allowing them to identify and manage risks before they snowball.
Edouard Mehrez
Edouard Mehrez is co-founder of Arrow Markets, pioneering a new paradigm for options trading on the Avalanche blockchain. Arrow offers the efficiency of centralized trading with the transparency and security of on-chain settlements. Before joining Arrow, Edward honed his expertise in quantitative finance at MKP. He has a strong academic foundation with a bachelor’s degree in mathematics and economics from UCLA and a Ph.D. in economics from Cornell University.
The memecoin launchpad saw the largest daily revenue in all of DeFi over the past 24 hours.
Memecoin launchpad Pump.Fun has recorded the highest gross revenue in all of decentralized finance (DeFi) in the last 24 hours, surpassing even Ethereum.
The platform has raised $867,429 in the past 24 hours, compared to $844,276 for Ethereum, according to DeFiLlama. Solana-based Telegram trading bot Trojan was the third-highest revenue generator of the day, as memecoin infrastructure continues to dominate in DeFi.
Pump.Fun generates $315 million in annualized revenue according to DeFiLlama, and has averaged $906,160 per day over the past week.
Income Ranking – Source: DeFiLlama
The memecoin frenzy of the past few months is behind Pump.fun’s dominance. Solana-based memecoins have been the main drug of choice for on-chain degenerates.
The app allows non-technical users to launch their own tokens in minutes. Users can spend as little as $2 to launch their token and are not required to provide liquidity up front. Pump.Fun allows new tokens to trade along a bonding curve until they reach a set market cap of around $75,000, after which the bonding curve will then be burned on Raydium to create a safe liquidity pool.
Pump.Fun generates revenue through accrued fees. The platform charges a 1% fee on transactions that take place on the platform. Once a token is bonded and burned on Raydium, Pump.fun is no longer able to charge the 1% fee.
Ethereum is the blockchain of the second-largest cryptocurrency, Ether, with a market cap of $395 billion. It powers hundreds of applications and thousands of digital assets, and backs over $60 billion in value in smart contracts.
Ethereum generates revenue when users pay fees, called gas and denominated in ETH, to execute transactions and smart contracts.
DeFi Technologies, a Canadian company financial technology companyis set to enhance its trading infrastructure through a new partnership with Zero Computing, according to a July 30 statement shared with CryptoSlate.
The collaboration aims to integrate zero-knowledge proof tools to boost operations on the Solana And Ethereum blockchains by optimizing its ability to identify and execute arbitrage opportunities.
Additionally, it will improve the performance of its DeFi Alpha trading desk by enhancing its use of ZK-enabled maximum extractable value (MEV Strategies).
Zero knowledge Proof of concept (ZKP) technology provides an additional layer of encryption to ensure transaction confidentiality and has recently been widely adopted in cryptographic applications.
Optimization of trading strategies
DeFi Technologies plans to use these tools to refine DeFi Alpha’s ability to spot low-risk arbitrage opportunities. The trading desk has already generated nearly $100 million in revenue this year, and this new partnership is expected to further enhance its algorithmic strategies and market analysis capabilities.
Zero Computing technology will integrate ZKP’s advanced features into DeFi Alpha’s infrastructure. This upgrade will streamline trading processes, improve transaction privacy, and increase operational efficiency.
According to DeFi Technologies, these improvements will increase the security and sophistication of DeFi Alpha’s trading strategies.
The collaboration will also advance commercial approaches for ZK-enabled MEVs, a new concept in Motor vehicles which focuses on maximizing value through transaction fees and arbitrage opportunities within block production.
Additionally, DeFi Technologies plans to leverage Zero Computing technology to develop new financial products, such as zero-knowledge index exchange-traded products (ETPs).
Olivier Roussy Newton, CEO of DeFi Technologies, said:
“By integrating their cutting-edge zero-knowledge technology, we not only improve the efficiency and privacy of our transactions, but we also pave the way for innovative trading strategies.”
Extending Verifiable Computing to Solana
According to the release, Zero Computing has created a versatile, chain-agnostic platform for generating zero-knowledge proofs. The platform currently supports Ethereum and Solana, and the company plans to expand compatibility with other blockchains in the future.
The company added that it is at the forefront of introducing verifiable computation to the Solana blockchain, enabling complex computations to be executed off-chain with on-chain verification. This development represents a significant step in the expansion of ZKPs across various blockchain ecosystems.
Mentioned in this article
Latest Alpha Market Report
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- Elastos BeL2 to Partner with StarkWare to Integrate Starknet’s ZKPs and Cairo Programming Language with BeL2 for Native DeFi Applications
- Starknet integration allows BeL2 to provide smart contracts and dapps without moving Bitcoin assets off the mainnet
- Starknet Exchange Validates the Strength of BeL2’s Innovation and Leadership in the Native Bitcoin Ecosystem
Elastos BeL2 (Bitcoin Elastos Layer2) has secured a $25,000 grant from Starknet, a technology leader in the field of zero-knowledge proofs (ZKPs). This significant approval highlights the Elastos BeL2 infrastructure and its critical role in advancing Bitcoin-native DeFi, particularly Bitcoin-native lending. By integrating Starknet’s ZKPs and the Cairo programming language, Elastos’ BeL2 will enhance its ability to deliver smart contracts and decentralized applications (dapps) without moving Bitcoin (BTC) assets off the mainnet. This strategic partnership with Starknet demonstrates the growing acceptance and maturity of the BeL2 infrastructure, reinforcing Elastos’ commitment to market leadership in the evolving Bitcoin DeFi market.
Starknet, developed by StarkWare, is known for its advancements in ZKP technology, which improves the privacy and security of blockchain transactions. ZKPs allow one party to prove to another that a statement is true without revealing any information beyond the validity of the statement itself. This technology is fundamental to the evolution of blockchain networks, which will improve BeL2’s ability to integrate complex smart contracts while preserving the integrity and security of Bitcoin.
“We are thrilled to receive this grant from Starknet and announce our partnership to build tighter integrations with its ZKP technology and the Cairo programming language,” said Sasha Mitchell, Head of Bitcoin Layer 2 at Elastos. “This is a major milestone for BeL2 and a true recognition of the maturity and capabilities of our core technology. This support will allow us to further develop our innovation in native Bitcoin lending as we look to capitalize on the growing acceptance of Bitcoin as a viable alternative financial system.”
A closer integration with Cairo will allow BeL2 to leverage this powerful programming language to enhance Bitcoin’s capabilities and deliver secure, efficient, and scalable decentralized finance (DeFi) applications. Specifically, the relationship with Cairo reinforces BeL2’s core technical innovations, including:
- ZKPs ensure secure and private verification of transactions
- Decentralized Arbitrage Using Collateralized Nodes to Supervise and Enforce Fairness in Native Bitcoin DeFi
- BTC Oracle (NYSE:) facilitates cross-chain interactions where information, not assets, is exchanged while Bitcoin remains on the main infrastructure
BeL2’s vision goes beyond technical innovation and aims to innovate by creating a new financial system. The goal is to build a Bitcoin-backed Bretton Woods system, address global debt crises, and strengthen Bitcoin’s role as a global hard currency. This new system will be anchored in the integrity and security of Bitcoin, providing a stable foundation for decentralized financial applications.
As integration with Starknet and the Cairo programming language continues, BeL2 will deliver further advancements in smart contract capabilities, decentralized arbitration, and innovative financial products. At Token 2049, BeL2 will showcase further innovations in its core technologies, including arbitrators, that will underscore Elastos’ vision for a fairer decentralized financial system rooted in Bitcoin.
About Elastos
Elastos is a public blockchain project that integrates blockchain technology with a suite of redesigned platform components to produce a modern Internet infrastructure that provides intrinsic privacy and ownership protection for digital assets. The mission is to create open source services that are accessible to the world, so developers can create an Internet where individuals own and control their data.
The Elastos SmartWeb platform enables organizations to recalibrate how the Internet operates to better control their own data.
https://www.linkedin.com/company/elastosinfo/
ContactPublic Relations ManagerRoger DarashahElastosroger.darashah@elastoselavation.org
DeFi
Compound Agrees to Distribute 30% of Reserves to COMP Shareholders to End Alleged Attack on Its Governance
Compound will introduce the staking program in exchange for Humpy, a notorious whale accused of launching a governance attack on the protocol, negating a recently adopted governance proposal.
Compound is launching a new staking program for COMP holders as a compromise with Humpy, a notorious DeFi whale accused of launching a governance attack against the veteran DeFi protocol.
On July 29, Bryan Colligan, head of business development at Compound, published a governance proposal outlining plans for a new compound participation product that would pay 30% of the project’s current and future reserves to COMP participants.
Colligan noted that the program was requested by Humpy in exchange for his agreement Proposition 289 — which sought to invest 499,000 COMP worth approximately $24 million into a DeFi vault controlled by Humpy, and which appears to have been forced by Humpy and his associates over the weekend.
“We propose the following staking product that meets Humpy’s stated interests as a recent new delegate and holder of COMP in exchange for the repeal of Proposition 289 due to the governance risks it poses to the protocol,” Colligan said. “The Compound Growth Program…will execute the above commitments, given the immediate repeal of Proposition 289.”
Colligan added that the proposal would expire at 11:59 p.m. EST on July 29. Had Humpy not rescinded Proposition 289, Compound would move forward with it. Proposition 290 — block Humpy using the Compound team’s multi-sig to deploy a new governor contract removing the delegate’s governance power behind Proposition 289.
Hunchback tweeted that Proposition 289 had been repealed a few hours ago. “Glad to have brought Compound Finance back into the spotlight,” they said. added. “StakedComp… finally becomes a yield-generating asset!
Markets reacted favorably to the resolution, with the price of COMP increasing by 6.2% over the past 24 hours, according to CoinGecko.
Attack on governance
Proposition 289 proposed investing 499,000 COMP from the Compound treasury into goldCOMP, a yield-generating vault of the Humpy-linked Golden Boys team.
The proposal passed with nearly 52 percent of the vote on July 28, despite two previous iterations of the proposal being defeated by strong opposition. Can And JulyThe proposals notably asked for only 92,000 COMP, with security researchers warning that any deposit of tokens into the goldCOMP vault would cede their governance power.
In May, Michael Lewellen of Web3 security firm OpenZeppelin, note The first proposal was submitted by a new governance delegate who was suddenly awarded 228,000 COMP by five wallets that got their tokens from the Bybit exchange. Combined with his own tokens, the delegate got 325,333 COMP, which is over 81% of the 400,000 tokens required for a governance proposal to reach quorum.
“We have been alerting the community to the risk that these delegates could support a potential attack on governance,” Lewellen said. “The timing of the new proposal and these recent delegations are suspect.”
Read more: Compound community accuses famous whale of attacking engineering governance
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