Even those who are most suspicious of the rise of cryptocurrency will likely admit that the underlying blockchain technology and its potential uses are exciting. One use of this technology, decentralized finance, or DeFi, is on the cusp of major growth. Regulators are aware of this growth and are moving to act accordingly. As a possible preview of the coming regulatory efforts, this past spring Treasury Secretary Janet Yellen urged regulators to accelerate their establishment of a regulatory framework for stablecoins, a rapidly growing class of digital currencies which, among other things,...

DeFi is a new line of business and by DeFinition a new risk sector with particular risks differing from the traditional financial sector and covering intangible risks. It will require modelling and correlation like other sectors but will have the advantage of real time granular data reducing the dependency of assumptions made in risk modelling. The following diagram shows the risk landscape as we perceive it traditionally pre DeFi evolution. This is a centralized model where intermediaries and third parties perform risk analysis to match the assets with liabilities. Much of DeFi has...

Synthetic assets, sometimes referred to as synths, are a combination of cryptocurrencies and traditional derivative assets. In other words, synths are tokenized derivatives. Synthetic assets are essentially tokenized derivatives. In the traditional financial world, derivatives are representations of stocks or bonds that a trader does not own but wants to buy or sell. In essence, if you want to profit from the price fluctuations of a stock that you don’t own, you can do this through a derivative. Synthetic assets, or tokenized derivatives, take this process one step further by adding...

Liquidity pools enable users to buy and sell crypto on decentralized exchanges and other DeFi platforms without the need for centralized market makers. A liquidity pool is a crowdsourced pool of cryptocurrencies or tokens locked in a smart contract that is used to facilitate trades between the assets on a decentralized exchange (DEX). Instead of traditional markets of buyers and sellers, many decentralized finance (DeFi) platforms use automated market makers (AMMs), which allow digital assets to be traded in an automatic and permissionless manner through the use of liquidity pools. The...

Lending and borrowing, within the realm of traditional as well as crypto finance, entails the act of one party providing monetary assets — be it fiat or digital currencies — to someone else in exchange for a steady income stream. The concept of “lending and borrowing” has been around for ages and is one of the core aspects of any financial system, especially the “fractional banking” setup that is predominantly used across the globe today. The idea is extremely straightforward — i.e., lenders provide funds to borrowers in return for a regular interest rate, and that’s quite literally it....

DeFi is a quickly growing aspect of cryptocurrency, but is that growth even real? What are the best metrics to measure growth in DeFii? You probably think growth can be easily measured by looking at key DeFi metrics like Total Value Locked (TVL). And that’s true to an extent, Total Value Locked (TVL) is the best way to measure growth in DeFi. However, TVL is a little misleading and does not tell the entire picture about measuring DeFi projects. This article will explain the best metrics to measure DeFi projects. Total Value Locked (TVL) is The Most Important DeFi Metric… Or...

DeFi is an open and global financial system built for the internet age – an alternative to a system that’s opaque, tightly controlled, and held together by decades-old infrastructure and processes. It gives you control and visibility over your money. It gives you exposure to global markets and alternatives to your local currency or banking options. DeFi products open up financial services to anyone with an internet connection and they’re largely owned and maintained by their users. So far tens of billions of dollars worth of crypto has flowed through DeFi applications and it’s...